Read on to find out where you all should invest to save tax
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It's tax season and the spread's laid out

Read on to find out where you all should invest to save tax

Manish Shah, CEO, BigDecisions.com

Imagine an elaborate dinner spread at a buffet. The fact that it's all you can eat is well understood and you're all set. There are many ways this could go down. You could get the mix of appetizers, entrees and dessert right and relish the meal.

On other occasions you might end up feeling dissatisfied because you had too much of the average stuff and too little of what ended up being the evening's winners. Every now and again, you could get it horribly wrong and end up getting sick. More than buffet meals, this reminds me of tax season!

It's time to save and everything ranging from products that help you save under 80C, 80D, and everything else out there's screaming for your attention. It's always amazed me that businesses such as life insurance see 40% or more of their annual sales in the last quarter (January to March) of the financial year. This happens because most salaried folks need to make their investments to save tax before the year-end.

The surprising bit is not so much that we wait until the last date - we do that with so many other things like last date for filing our tax returns, last date / week for submissions in college etc -- but how much we focus on getting it done rather than getting it right.

Here's a small list compiled from my own learnings and form those of our 2 million users and they're clubbed broadly into 2 categories:

A)Doing what the section really intended for you to do Section 80C - you're allowed Rs 1.5 lakh and you can choose between various instruments such as life insurance, equity-linked savings schemes, PF, VPF to name some.

If you broke this up into the 2 big pieces you could address - protection for your family and long-term savings, you'd first go about getting adequate life insurance and then saving the rest for a future goal (your children's education, marriage, your own retirement). You could choose to combine both these in one instrument, like life insurance-cum-savings plans but that's most often a bad idea. 

You could (as over 80% of all insurance buyers do) say, buy a savings-cum-life insurance plan for an annual investment of Rs 1.5 lakh and claim that deduction but that would give you Rs 15 lakh of insurance cover. Is that anywhere near enough? Less than a fifth of that or Rs 25,000 could get you (for e.g. a 35-year-old man who doesn't smoke) Rs 2 crore of life insurance. 

Of course you don't get any of this back if you don't die but isn't that the point of insurance? I don't know if any of us ever thought of going to our motor insurer to seek a refund because we haven't been in car accidents for a while! Of what's left now, say Rs 1.25 lakh, you can squirrel away for your future goals knowing that you're building this on a bedrock of security.

The balance between how much you now have left and the money you've already put aside for your provident fund is fair game - to go where you (or your trusted advisor) think best. Section 80D - in what's probably a very important development, the government is incentivizing you to get enough health insurance.

Allowing us Rs 25,000 instead of the erstwhile Rs 15,000 as tax deductible, gives someone like me, a 40 year-old male living in Mumbai as part of a family of 4 people the encouragement to go from a health insurance coverage of Rs 7-10 lakh to well over Rs 15 lakh. And the additional amount is well and truly needed. 

If you live in one of the bigger Indian cities, given medical inflation over the last decade, having Rs 15 lakh for a family of 4 is not really excessive - our data indicates that most people who believe that their Rs 2-4 lakh company provided health insurance is enough have less than a third of what they really need. Section 80CCD - the jury is still out on how suitable the National Pension Scheme (NPS) is for everyone given the prescribed lock in period of 15 years but given that you're allowed a Rs. 50,000 deduction is worth a discussion for sure. You could take the view that Rs 50,000 per year for 15 years could make for a nice little nest egg.

B)    Making use of the deductions available even if you might not base key decisions on these

Your home loan principal repayment  - given that you're allowed Rs 3 lakh (1.5 lakh each) between a couple (self & spouse ) we sometimes make the mistake of not taking the loan jointly and therefore missing out on half of what's available.

Your home loan interest repayment - As per this section, the interest payment of up to Rs 2 lakh (for Self occupied property) can be claimed by each of the home loan borrowers. If there are two co-borrowers then the maximum total tax deduction under Section 24 can be up to Rs 4 lakh. The maximum interest amount that can be claimed as tax deduction u/s 24 is unlimited for a let-out property.

C) Let's not forget the "Others"

Besides the abovementioned ones, there are a host of other areas that are eligible for tax benefits. 

Tuition Fees: The tuition fees that you pay for your child's education is eligible for deduction under Section 80C (up to Rs 1.5 lakh). The deduction is available for full time courses only taken in university, college, school or other educational institution. No deduction is available for fees paid for private tuition or coaching classes for admission in professional courses.

Dependent Individual - Deduction is allowed to Individuals, for a dependent who is differently abled and is wholly dependent on the individual for support & maintenance. Medical Expenses incurred - Deduction is allowed for the expenditure incurred for medical treatment of the specified disease or ailment. When you have spent money for treatment of a dependent, suffering from a listed disease, you can claim deduction under Section 80DDB.

Interest on education loan - It allows tax deduction on education loan from financial institutions or approved charitable institutions. The deduction allowed is only for the interest component only and not for the principal amount, and is over and above the Rs 1.5 lakh deduction under Section 80C.There is no maximum limit for interest deduction.

Payment done toward charities - Donations to certain approved funds, trusts, charitable institutions for tax deduction.

Savings bank interest - Interest on deposits in savings bank accounts qualifies for tax deduction under this section. Maximum deduction offered is Rs 10,000 p.a.

By Manish Shah, CEO of BigDecisions.com