Tax Planning for New Financial year

April, this is the time, when we need to declare the Tax Declarations which we would be doing in the coming year. Some of us declare few investments and only hope to do them sometime in the year. But not all are able to meet that commitment. Here are a few advices, which I would suggest to use as a guiding tool, rather than for planning.

Lets look at the Simple Tax Investments which we can use.

80ccc

1. Upto 2 Lakhs under Section 80 ccc.  In this 2 Lakhs, 50,000/- is only meant to be invested in NPS(National Pension Scheme). 
2. The Remaining 150,000/- can be invested in Insurance Plans, Mutual Funds , NSC.
3. From this 150,000, since you would also have been paying PF from the company itself, it would be also considered as an investment. You will need to do it and you dont have a choice. 
4. If you have a home loan, the Principal from the home loan, will also be considered as a contribution towards the 1.5 Lakhs. 
5. After subtracting the PF amount which you are paying and the House Loan Principal component, the remaining amount will need to be invested, in other instruments like Term Insurance, ULIP Policies, Tax Savings Mutual Funds, NSC etc.
6. If you dont have any Insurance Policies, its a good time to start. Maybe smaller amounts is a good start. 
7. If you dont want to invest in a hurry, then plan to invest in Mutual Funds. So that, that commitment doesnt become a recurring one every year. But make sure, you dont leave any room for saving taxes.

80D

The other Tax Savings, which most of the folks dont do, is the Medical Insurance. You get deduction upto 25,000/- per year under section 80D. Its always good to have your Medical Insurance plan of your own, even if your company provides you with one.

NPS is something, one should start investing, as those in the private sector will not get any pension during their retirement life. Its only your own investments and the PF's which will come to your rescue during your retirement life. 

Out of the 2Lakhs under 80ccc, 50,000/- should be from NPS only. Though you can and should try to invest more. 

House Loan Interest

The principal component of the house loan, will be considered as an investment under section 80ccc, while the Interest  component will be getting full tax exemption upto 2 Lakhs.

Also, those having second homes and given on rent, from April 2017 onwards, the maximum loss one can claim from the house loan interest is also limited to 2 Lakhs, which didnt have any limits until the last year. 

Another exercise one needs to do, at this time of the year is also to get the Home Loan Interest Certificates from your respective banks, as you might need to submit them , while filing your returns, if there is a difference in the amounts, in the Provisional Tax Document and the Tax Certificate. 

If you have any queries, kindly put them in the comments section below.

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Avoid Last Minute Tax Planning

Came across this nice link in Economic times.
http://economictimes.indiatimes.com/articleshow/7389665.cms

I found this article very good. In simple words one shouldn't wait for the last minute to invest or rather to plan your investments. Do it regularly and plan it will. Use the power of averaging and stagger your investments over a period of time. They help you not only from losses but also give you great returns. Systematic planning is the best way to invest, unless you are full time into this investments.

Here's the article mentioned above in the link

Aamir Humayun looks forward to holidays because they help him unwind and let him spend time with his children. But the public holiday for Mahavir Jayanti in 2007 put the Delhi-based businessman in a quandary. It was 31 March and Humayun had not finished his tax planning. “All banks and post offices were closed. There was just no way I could save tax,” he says.

So his chartered accountant stepped to help. One call to an insurance agent and a few signatures later, Humayun’s tax planning for the year was done. He and his wife had been sold two unit-linked insurance plans with an annual premium of Rs 1 lakh. “I was told that I would have to invest only for three years and that my investment would grow to about Rs 48 lakh in 20 years,” says Humayun.

The agent, who was incidentally the chartered accountant’s wife, conveniently glossed over the fact that these were only projections and based on the ridiculous assumption that stock markets would rise 18-20% every year in the next two decades. When the markets crashed in 2008, the value of Humayun’s investment plummeted. He has paid premiums for four years and the fund value is barely in the green. “Now these insurance premiums have become millstones around my neck,” he says in disgust.

The only cold comfort for Humayun, if at all, is that he is not alone. Millions of taxpayers across the country compress their entire year’s tax planning into one month. For salaried taxpayers, the tax-saving season kicks off when they get a note from the accounts division on how much they need to invest. With it comes the warning: give proof of investments or get ready for a hefty tax deduction at source (TDS). “That’s the time when undisciplined investors start running around like headless chicken,” says a financial planner.

In the rush to invest before the deadline, taxpayers often make fundamental investing mistakes, which they rue for years to come. Gurgaon-based software professional Ashwin Arora knows the perils of just-in-time tax planning. Three years ago, he was working with a large global consulting firm that gave him less than two weeks to show proof of his investments. “My company asked for proof by the end of the calendar year and I had only my provident fund contribution to show,” he says. So, Arora promptly invested Rs 33,000 in three tax-planning mutual funds at one go. This was just a few days before the markets went into a tailspin in 2008. “The three funds are good performers but my investments are still in the red,” he says glumly. Small investors should not put large amounts as a lump sum in equities. It’s best to stagger the investment in monthly SIPs. 

More importantly, experts say tax planning should be a part of the individual’s overall financial plan. In other words, the investment choices should not be governed by the potential returns they offer but by their ability to fit into the asset allocation of the individual. “One should choose the option depending on one’s risk appetite and asset allocation,” says Pankaaj Maalde, a financial planner working with Mumbai-based Sykes & Ray Financial Planners. Invest in the Public Provident Fund (PPF) if you need long-term debt in your portfolio. Go for NSCs, fixed deposits and infrastructure bonds if you want medium-term debt. Buy ELSS funds if you want equity exposure. And take an insurance policy if you require life cover. 

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