You are back from the year-end break and the accounts department has just flashed its ultimatum for submitting the proofs of tax savings made. The typical reaction is to arbitrarily exhaust the Rs 1.5 lakh to be deployed to avail tax breaks under Section 80C. However, if you have planned these investments through the year, you would have little to worry. But don’t panic if you haven’t planned it through the year. First, take a look at your existing outflows that entitle you to make use of 80C tax breaks before utilising the shortfall, if any.
Children’s tuition fees: Section 80C is not just about investing in ELSS, PPF, NSC or life insurance policies to claim tax benefits. Certain expenses like children’s tuition fees paid to their school, college, university or any other educational institution also qualify for deduction under the section. This includes admission as well as annual fees for up to two children, but not donations or development fees paid. Also, any fees paid to coaching or private tuition classes will not be eligible for the exemption.
Employee’s EPF contribution: The amount that is deducted every month from your salary to be directed towards employee’s provident fund (EPF) is part of the 80C basket. If you fall in the highest tax bracket, it is likely that your EPF deduction would have already exhausted the 80C limit single-handedly, eliminating the need to invest separately.
Home Loan: If you live in a metro and have home loan EMI commitments, again, you probably might not have to make any additional efforts as home loan principal repayment is eligible for deduction under the section. For example, an individual with a big-ticket home loan of Rs 75 lakh, carrying an interest rate of 8.5% per annum, will end up repaying principal of around Rs 1.45 lakh in the first year, largely taking care of her tax-saving requirements.
Life insurance: Before you blindly accept your distributor’s advice to buy a new life policy to claim tax relief on premiums paid, pore over your portfolio to figure out your current level of life insurance as also premium commitments. Avoid a fresh purchase if premiums paid or payable during the financial year add up to around Rs 1.5 lakh. You can always produce receipts of the last premium payment made to secure the tax benefit. More importantly, do not ‘invest’ in yet another policy if your existing life cover can adequately safeguard your dependent’s interests in your absence. It will save you the trouble of loading your portfolio with another life insurance policy that necessitates recurring payments to keep it in force.