Five DO’s and DON’Ts of year-end Tax Planning

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from pillar to post trying to figure out how much we can save from our annual tax. Let us look some do’s and don’t’s that will stand you in good stead as you try and make the best out of your finances for the year.

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DO

Buy a Life Insurance Policy, if you have not done so already. Premiums paid for Life Insurance are eligible for a deduction from your income u/s 80C upto Rs 1,50,000/-

DON’T

But don’t be hasty and buy any policy that is being sold, just for the sake of tax planning. As we have mentioned in earlier articles on this site, too many Insurance agents will try to sell you endowment plans with high premia and disguise it is a tax-planning device. Remember that you are buying Insurance as protection for your dependents and not to save tax – that is just an incidental benefit. Opt for a Term Insurance plan and remember to claim the deduction for it.

DO

Buy a good health insurance policy. Premiums paid for health insurance out of your taxable income are eligible for a deduction from Income Tax over and above the 80C limit. The limit is Rs 25,000 for yourself, spouse and children. If you are also paying the mediclaim premium for your parents, the limit is a separate Rs 25,000 for that (increased to Rs 30,000 if parents are senior citizens).

DON’T

As always, availability of a tax deduction should not be the reason for buying an expensive policy. Pick and choose the policy wisely, carefully going through the relevant clauses. See what is covered and what is excluded very carefully.

DO

Claim the deduction available for repayment of Home Loans. If you have a Home Loan EMI going out of your income every month, don’t forget to take a certificate from the Bank showing clearly the split between Principal and Interest. Interest is also an eligible deduction u/s 24 of the IT Act.

DON’T

Try to claim deduction twice over if you are paying the EMI from a joint account with a spouse or parent. This does get cross-checked basis your PAN. If you want you can claim the benefit in a proportion, but don’t try to do a double-count.

DO

Make an investment in the PPF. This remains the best last-minute investment avenue available for ordinary tax -ayers. Though the lock-in period is long, the interest paid is competitive and often higher than Bank FD’s and is currently tax-exempt

DON’T

Make a lump-sum investment in ELSS Mutual Funds. Though I strongly recommend ELSS Funds as a tax-saving device overall, it is best to space out your Mutual Fund investments over the year through a monthly Systematic Investment Plan. Trying to make up your entire tax planning by putting in a large sum of money into the Market at the end of the financial year is not recommended.

DO

Be charitable. Make a donation. There must be some cause you care about enough to contribute some money to it? Many charities doing excellent work allow you to claim a tax benefit for the donation you make u/s 80G. Ensure you check the 80G registration status of the said trust when making the donation, however and obtain a stamped receipt quoting your PAN. Also, the deduction is only available for donations made in cash or through your bank account, so donation of clothes or food etc. will not get you this benefit

DON’T

Try to get a fake receipt or make a donation to an unregistered trust. Sooner or later, these things tend to catch up, and as the Income Tax department is becoming more technology-proficient, the means available to it for tracking malpractice of this sort are also improving.

So, do the best you can to save taxes, but pay up what you need to. After all, there is no price tag on peace of mind, and the taxman will always have his due.

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Kunal
Kunal is an ex-banker with a (largely self-proclaimed) flair for writing. He is an associate member of the Institute of Chartered Accountants of India and an MBA from Narsee Monjee Institute of Management Studies (NMIMS), Mumbai.

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