Tax planning: How to save tax before March 31 deadline

Taxpayers should not expect any leniency in the deadline this year. As they rush to complete their tax planning for the year, here is the information they need. There are tax-saving instruments on eight key parameters - returns, safety, flexibility, liquidity, costs, transparency, ease of investment and taxability of income. ELSS funds are still at No. 1 position, followed closely by the NPS and small saving schemes. Though the tax net has ensnared many investment options, the tax-free Ulips continue to score low due to their inflexibility. And traditional life insurance policies remain the worst way to save tax. They give very low return and the high premiums prevent the policyholder from investing in other options. That's why life insurance is at the bottom.

ELSS funds

We all need to invest in tax-saving financial avenues such as Public Provident Fund (PPF), National Pension System (NPS), National Savings Certificate (NSC), tax-saving fixed deposit, life and health insurance policies, among others, in a bid to save tax. However, apart from these, there are some other options also that can help us reduce our tax outgo without making any investment.

Home Loan

Taking a housing loan is one of the best ways to save tax. It provides several deductions. Ordinarily, you'll get deductions up to Rs 1.5 lakh on home loan principal repayment under Section 80C, and up to Rs 2 lakh on the interest repayment under Section 24B. Under 80C, you have the option of pre-paying the principal and earn exemptions up to Rs 1.5 lakh and thus avoid having to buy more tax-savers. Based on the property you've bought, the amount you're borrowing and the year of your loan sanction, you may also be eligible for further tax deductions of Rs 50,000 under Section 80EE or Rs 1.5 lakh under Section 80EEA on your loan interest repayment.

"Do note, the Union Budget 2021 has proposed to extend the 80EEA tax benefit by one more year; therefore, you can claim this tax deduction benefit if your home loan for your first home purchase is sanctioned between 1 April 2019 and 31 March 2022. Other riders to enjoy 80EEA tax benefits include the housing loan must be taken from a financial institution or an HFC, the stamp duty value of the property shouldn't be more than Rs 45 lakh, the individual taxpayer is not eligible for 80EE tax benefit and the carpet area of the property shouldn't exceed 645 sq. ft. if it's located in a metropolitan city and 968 sq. ft. if it's located in any other city or town in the country," says Adhil Shetty, CEO, BankBazaar.com.

Medical expenses

Section 80D allows you to claim deductions against premiums paid towards health insurance policies for self, spouse, dependent children, and dependent parents. You should absolutely buy health insurance for everyone in your family, but even if you don't, you can claim deductions up to Rs 5,000 for expenses incurred for preventive health check-ups. Also, healthcare expenses incurred by you as a senior citizen, or by you for your senior citizen parents, can also earn deductions up to Rs 50,000 assuming the senior citizen is not covered by health insurance.

Children's tuition fees

Expenses related to children's education consume a major portion of our income. Hence, it makes a lot of sense to maximize the tax benefits associated with these costs. Parents can claim a tax deduction of up to Rs 1.5 lakh under Section 80C for the tuition fee paid for their children's education. Do note that this benefit applies to any full-time education plan imparted at any registered institution like schools, colleges, and even pre-schools and nurseries. However, this applies for the tuition fee paid for up to 2 children per taxpayer (i.e. a couple consisting of two individual taxpayers can avail this benefit for up to 4 children). Also, this benefit only applies to the tuition fee and not other payments like development fee, late payment fee, etc. Also, if your employer provides children's education allowance and hostel expenses allowance, you can avail tax exemption on such allowances up to Rs 1,200 p.a. and Rs 3,600 p.a., respectively, for up to 2 children.

Hike your EPF contributions with VPF

The Employees' Provident Fund forms the backbone of retirement savings for countless salaried individuals. While they need to save at least 12 per cent of their basic salary and dearness allowance as EPF, they can go beyond this threshold (as much as 100 per cent of their basic salary and DA) through the Voluntary Provident Fund scheme. VPF, as the name suggests, is a voluntary contribution over and above the mandatory EPF contributions.

"Salaried individuals can reach out to their HR partners to know how they can start with their VPF contributions. More importantly, they can avail tax exemption benefit of up to Rs 1.5 lakh under Section 80C for their EPF and VPF contributions. This risk-free investment scheme is currently offering an interest rate of 8.5 per cent p.a. which is higher than many than other tax-savers like PPF and 5-year FDs. But do note withdrawing EPF and VPF corpus before five years of total service will attract a 10 per cent TDS. However, it's advisable they try not to disturb their EPF and VPF as these funds are meant for post-retirement years," says Shetty.

Paying rent

If you are a salaried person and are living in a rented accommodation, then you can save some tax by paying rent to the landlord. If you receive a house rent allowance (HRA) from your employer, then you can claim an exemption for the rent paid as per provisions stated in Section 10(13A) of the Income Tax Act. In case of other individuals and in cases where no HRA is received by the employee, a deduction can be claimed as per Section 80GG of the I-T Act for the rent paid in respect of accommodation occupied by the individual for his own residence up to Rs 5000 per month (subject to prescribed conditions). Each parameter is given equal weightage and the composite scores of the various tax-saving options determine their place in the ranking.