There are ways in which you could save tax, even at the last minute, before the financial year comes to an end. These three quick tax-saving products do more than just that.
As we are at the tail end of the financial year 2021–2021, some of us may still not have exhausted the scope of tax-saving investments available for this year. So, if you are dashing towards the finishing line, here are some options. However, do remember that last-minute tax-planning measures can lead to hurried and poorly thought-out decisions that could prove costly later. For example, you may be sold a dud investment plan that doesn’t work in your long-term interests and leads to poor returns. Or, you may make a long-term investment that creates liquidity issues. So, even if you are investing at the last minute, take time and effort to go through the major features of the product, such as its purpose, tenure, expected returns, lock-in period, liquidity, and more.
Here are some tax-saving options that you may consider at this point:
ELSS and SIPs
Equity-linked saving schemes (ELSS) are mutual funds that allow you to invest in the stock market and claim tax deductions under Section 80C of the Income Tax Act up to an overall amount of Rs 1.5 lakh. Data shows that in the last 20 years, the Nifty 50 index has given a compounded average growth rate (CAGR) of 12.3 percent. This could be considered an indication of the level of returns that equity has given. "With a three-year lock-in, ELSS funds also have the shortest lock-ins among tax-saving investments," says Adhil Shetty, CEO of Bankbazaar.com. You can invest in ELSS funds in a lump sum or through monthly systematic investment plans (SIPs). But do remember that each SIP will have a lock-in of three years.
PF, EPF, and PPF
For risk-averse investors who’re not prepared to venture into the volatile financial markets but want to invest for the long term, a provident fund (PF) is an option. In your employer-provided Employees’ Provident Fund (EPF) scheme, you could top up your own contribution to up to 100 per cent of your basic pay. "The EPF currently offers guaranteed returns of 8.10 percent per annum—higher than any other similar debt investment scheme, and also tax-free on retirement so long as your annual contribution does not exceed Rs 2.5 lakh. If you don’t have an EPF account, you have the option of investing in the Public Provident Fund (PPF), which currently returns 7.1 percent per annum, risk-free and tax-free. Contributions to both are tax-exempt under Section 80C, "adds Shetty. These products can be part of your planning for long-term goals. However, be aware of the flip side too. Both schemes are long-term ones and therefore not high on liquidity.
The Health Insurance Plan
Apart from products that offer a tax benefit under Section 80C, you can consider other tax-saving products too. One of them is a health insurance policy, which gives you financial protection against medical emergencies as well as a tax deduction under Section 80D of the Income Tax Act. You can claim deductions for two different policies: one for yourself, your spouse, and dependent children; and another for dependent parents. For each group, the maximum deduction that can be claimed is Rs 30,000 if the policy participants are under 60, or up to Rs 50,000 if they’re over 60.