Helpful Tips to Get You Through a Last-Minute Tax-Saving Scramble

Key Takeaways:

• Tax saving season starts in April each financial year and is the golden period to select tax-saving instruments.
• Tax-savings instruments like FDs, PPFs, insurance, ELSS, ULIPs, etc., can help you avail of tax deductions and earn tax-free income.

As a law-abiding citizen, you must file your tax returns on time. However, it’s easy to end up procrastinating doing so, especially if you have a hectic schedule or a busy life. When you do remember to file your returns, it’s at the eleventh hour when you don’t have the time to research tax-saving options. If you want to save on tax even when you’re filing your returns last minute, here’s a handy guide to help you out.

Fixed Deposit:

A classic with good reason, a Fixed Deposit can help you create a nest egg while saving on tax. When you open a Fixed Deposit, you can enjoy a tax deduction under Section 80C of the Indian Income Tax Act, 1961. Invest in a tax-saving FD with a lock-in period of 5 years and earn interest at the rate of 5.5%-7.7% while claiming deductions up to ₹1.5 lakh. You can invest in an FD online in a matter of minutes, right before you file your taxes.

Public Provident Funds:

A popular option for saving tax, a Public Provident Funds, or PPF, allows you to invest your funds and earn interest at a guaranteed rate. All you need to do is head to the nearest post office or an authorised public or private bank and open a PPF account. Once you’ve invested in the scheme, you can earn a deduction of up to ₹1.5 lakh per financial year under Section 80C of the Income Tax Act of 1961.

Unit-Linked Insurance Plans (ULIPs):

ULIPs are long-term investment options that let you invest in equity funds, debt funds, or a combination of the two. While investing in ULIPs lets you enjoy greater flexibility to meet your financial goals, it also allows you to avail of tax deductions under Section 80C and 10(D) of the Income Tax Act, 1961.

Insurance:

Whether you purchase life insurance to safeguard your family after you pass or medical insurance to cover the costs of health care, insurance is a financial tool that provides safety during difficult times. In addition to the benefits it offers, insurance policies can also help you save tax. As per Section 80C of the Income Tax Act, you can avail of a maximum deduction of ₹1.5 lakh on premiums paid towards life insurance policies. Amounts you receive upon death/maturity are also tax-free under Section 10 (D) of the Act. Similarly, Section 80D offers tax benefits up to ₹20,000 for senior citizens and ₹15,000 for others on health insurance premiums. If you receive any sum under critical illness policies, such maturity value will also be tax-free.

Tax-Saving Mutual Funds:

Tax-saving mutual funds, also known as Equity-Linked Savings Schemes (ELSS), allow you to invest in the stock market while saving on tax. Such mutual funds are most suited for investors who have a moderate to high-risk appetite and an investment horizon of around three years. Covered under Section 80C of the Income Tax Act, investing in ELSS can help you avail of a deduction of up to ₹1.5 lakh and enjoy tax-free maturity under Section 10 (D).

Conclusion:

While you may be in the habit of filing your tax returns last minute, try to remember that April 1st of each year marks the beginning of tax saving season. It is ideal to select tax-saving instruments that not only help you avail of deductions but also earn tax-free income at the start of the financial year.