Dr. Sanjiv Agarwal
March, being last month of any financial year is scary for the salaried assessees (employees) and all employers are found arguing with employees to get the proper and due income tax deducted at source (popularly called TDS). The impact is so much so that the cash budget of the employees gets disturbed and he or she may be seen running for tax savings to ensure that employer do not deduct TDS from salary. In some cases, the employees mess up to the extent that their entire salary for February and / or March goes in TDS deduction and in some cases, even employer has to ask for cash payment.
There are two ways of looking at this issue – one pay the income tax or let employer deduct the applicable tax. Two, plan your taxes in such a way that part of salary or earnings is invested in tax saving schemes which offer both – savings by investment in instruments or securities and tax savings. You get both, returns on savings and plan paying lower or no income tax at all (or avoid paying taxes). Generally, planning taxes or paying optimum taxes involve claiming tax free incomes, earning incomes or spending that bring tax benefits and investing, thus saving for tax benefits.
For tax free incomes, one needs to submit medical bills (against medical allowance), rental receipts from landlord (for house rent allowance), travel proof (for LTA) etc so as to treat those incomes tax free.
Certain tax benefits are available based on positive actions and proofs such as interest on house loan (section 24) ; principal repayment of home loan, tuition fee paid for children, self contribution to employee provident fund (section 80C); premium paid on mediclaim of self or parents (section 80D).
Investing for tax benefits need planning. Tax benefits are available under section 80C, 80CCC, 80G and 80CCG of the Income Tax Act. Such investments will make you end up paying lesser tax. For 80C and 80CCC benefits, collective maximum limit of investment is Rs. one lakh. The qualifying investments cover public provident funds, specified bank deposits, mutual funds under ELSS, unit linked insurance plans, national savings certificates, pension plans etc. These are long term investments ranging from 3 years onwards and as a prudent investor, one should also consider negative impact of inflation on post-tax returns. To overcome this, long term return should beat inflation which may or may not happen. Keeping this in mind, growth can be expected from ULIPs, pension plans and mutual funds. To choose, one should avoid products or schemes without track record or with weak track record, smaller funds and lower past returns. However, a good past performance may also not be repeated in future.