5 Last-Minute Income Tax Saving Instruments

Did you remember that soothsayer who warned Julius Caesar to “beware the ides of March”? If that seer was alive today, he would have uttered the same thing to millions of taxpayers. Yes, the countdown to the new financial year, 2017-18, has started. By now, you might have already submitted investment proofs to your company’s finance department to claim a tax deduction. However, if you have been running behind date, here are some useful tips to save your hard-earned money and taxes before the D-day.

1. Invest in an ELSS: An ELSS (Equity Linked Savings Scheme) is a diversified equity mutual fund in which a major chunk of the invested amount is put into equities. It is one of the best investment options which come with a shorter lock-in period of three years and 100% tax exemption. Moreover, ELSS funds do not require recurring payment and therefore, if you realize that the fund doesn’t meet your needs, you can stop making payment and you don’t need to pay any charges. If your KYC is done, the investment in ELSS becomes hassle-free. All you would require to do is to take the help of reputed third-party websites which track the mutual funds. Choose the fund with the help of the ratings given by them and then log on to the selected fund house’s portal for making investment.

Though, the investment is market-oriented and some risk is involved, if you do your market research well, you won’t face any problem afterward.

  • Tax Benefit: Under Section 80C, up to Rs 1.5 lakhs
  • Taxability on Maturity: Exempt

2. Health Insurance: In today’s internet driven world, you can buy health insurance online in a few clicks and enjoy tax benefits. Usually, insurance applicants under 45 year of age do not need to go through medical tests. In case you are above 45, buy a mediclaim policy now because the policy will be issued post-medical tests only. It means, even if you will apply for the health insurance policy before 31st, if the insurer doesn’t offer you the policy, you can’t claim tax deduction on the basis of the insurance application.

In addition to buying health insurance for yourself, you can insure the health of other family members and enjoy tax benefits. A quick look at the tax deduction available on health insurance policies bought for family members:

Cases Spouse and Kids Parents (whether dependent or not) Total tax deduction available
All family members are below the age of 60 Rs 25,000 Rs 25,000 Rs 50,000
Except parents, all family members are below 60 Rs 25,000 Rs 30,000 Rs 55,000
All family members are above 60 Rs 30,000 Rs 30,000 Rs 60,000

Even top-up and super top-up health insurance plans are eligible for tax deduction. Further, preventive health checkups, get tax benefit up to Rs 5,000 within the total tax limit. Remember, premium payment made via cash doesn’t get tax advantages.

  • Tax Benefit: Under Section 80D, up to Rs 25,000 and Rs 30,000 in case of senior citizens
  • Taxability on Maturity: Not Applicable

3. Invest in a Tax-Saver Bank Fixed Deposit: It is a popular investment option, especially among conservative investors. You can open a five-year tax saver fixed deposit online by transferring funds from your savings account. However, do check with your bank, as there are very few banks, which allow customers to open a tax-saver FD online, even though a regular FD can be opened

  • Tax Benefit: Under Section 80C, up to Rs 1.5 lakhs
  • Taxability on Maturity: Interest is taxable

4. Go for PPF: As a part of government-backed small saving scheme, Public Provident Fund or PPF is a traditional yet popular investment option. An individual with a zero risk appetite can open a PPF and invest in it for 15 years. Deposits in PPF can be either made lump-sum or in maximum 12 installments.

  • Tax Benefit: Under Section 80C, up to Rs 1.5 lakhs
  • Taxability on Maturity: Tax-free

5. Buy Term Insurance: A term insurance ensures financial security of your family even after your death. It is one of the cheapest insurance policies, as benefits are paid only when a policyholder dies. In case, he/she survives the tenure, nothing will be paid. In addition to covering your life, a term insurance policy also gives tax benefits.

  • Tax Benefit: Under Section 80C, up to Rs 1.5 lakhs
  • Taxability on Maturity: Not Applicable

 A Snapshot of Tax-Saving Instruments under Section 80C

Name of the Investment Minimum Investment Amount (in Rs.) Lock-in years Tax Returns Risk Profile
Public Provident Fund (PPF) 500 15 EEE* Low
Tax- Saver Bank Fixed Deposit  – 5 ETE** Low
ELSS 500 3 EEE High
National Savings Certificate 100 5 ETE Low
National Pension Scheme 6,000 (total contribution in the year) Till the age of 60 EET*** Medium
Senior Citizen Saving Scheme 1,000 5 ETT Medium
Unit-Linked Insurance Plan 25,000 10-15 years EEE Medium

EEE*: Exempt, Exempt, Exempt. The first exempt means that your investment is eligible for deductions. The second exempt means that there is no tax on the returns earned during the accumulation phase. The third and final exempt means that the income earned from investment would be tax-free at the time of withdrawal.

ETE**: Exempt, Taxable, Exempt: The first exempt means that your investment is eligible for deductions. The taxable means that there is tax on the returns earned during the accumulation phase. The third exempt means that income earned from investment would be tax-free at the time of withdrawal.

EET***: Exempt, Exempt, Taxable: The first exempt means that your investment is eligible for deductions. The second exempt means that there is no tax on the returns earned during the accumulation phase. The taxable means that the income earned from investment would be taxable at the time of withdrawal.

Remember, tax planning should be a continuous process. So, instead of making it a ‘last-minute’ exercise, plan in advance, preferably when the financial year starts. Unlike Caesar, you should pay heed to this important tip!

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7 responses to “5 Last-Minute Income Tax Saving Instruments”

  1. mehta n p says:

    ppf is locking for 15 years

  2. kamal biswas says:

    Thanks a lot. I believe there is another option as last minute tax saving. It is investment in Rajib gandhi equity linked investment. I hope Sir will focous his light about what it is and how does a tax payer can buy this scheme.
    Awaiting for your valuable reply
    Regards
    Kamal biswas habra

  3. Dilip Singhal says:

    In NPS, the minimum contribution has been reduced from earlier Rs.6000 to Rs.2000 p.a.

  4. gopal kokal says:

    Information on Senior citizen scheme is not correct. It is not EEE. interest earned on deposits under this scheme is changeable to tax as per present rules. Please check and modify.

  5. Govindarajan Sridharan says:

    Your comment for senior citizen savings schemes as EEE is not correct. Interest paid in the scheme is fully taxable and if the amount exceeds 10000 TDS will be done. Please verify and clarify.

  6. Uv says:

    Lockin period of investment is 5 yrs in ppf i guess

  7. Dr.M.K.Raman says:

    Thanks for the tax guru updates.
    I need clasrification about
    SCSS scheme for 5 years comes under 80 c
    Kindly clarify
    Thanks and regards
    Prof.M.K.Raman

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