Are you desperately searching for the right tax-saving instrument? Pause for a moment. See if you really need one. Under Section 80C of the Income-Tax Act, the maximum you may save is Rs 1 lakh in a year. There could be an investment made in the previous year(s) that requires regular commitments each year, or an expense that qualifies for tax exemption. You might not have to undertake any fresh investments because if you invest more than the limit of Rs 1 lakh, it's not going to fetch you any additional exemption. Let's see what such existing commitments are.
Employees' Provident Fund (EPF) –
If you are a salaried employee, each month you contribute 12 per cent of your basic pay towards EPF. An equal amount is contributed by the employer, out of which 8.33 per cent goes towards EPF, and the rest towards the Employees' Pension Scheme. Calculate 12 months' outgo to get your total EPF contribution. Remember, only the employee's contribution qualifies for a tax break. You may increase the contribution even up to 100 per cent of the basic pay. The rate of interest for the current fiscal has been proposed at 9.5 per cent per annum; however, the prevailing rate is 8.5 per cent.
Life insurance or pension plans –
Calculate all your commitments towards premium payments for life insurance policies of your own, your spouse and children (including dependent, independent, minor, major, married or unmarried) for claim purposes. Request the insurer to provide you premium paid/dues certificate for the year. Buying a new policy may add to your costs, so you can use the top-up option to park additional savings.
Tuition fees –
Take into account the amount paid as tuition fees to any educational institution, university, college or school in India for any full-time course. It includes even play schools, pre-nursery and nursery classes. However, you can claim tax benefits on tuition fees for two children only and up to Rs 1 lakh.
Home loan principal repayment –
If you are servicing a home loan, ask your lender to provide you the home loan certificate as it shows the total interest paid during the year. This payment allows tax exemption under Section 24 with an upper limit of Rs 1.5 lakh. Principal repayments up to Rs 1 lakh qualify for exemption under Section 80C.
Deduct the total outgo under Section 80C from Rs 1 lakh; the remaining amount, if any, should be invested for fuller utilisation of tax breaks. Before you make any investment, figure out if there are any short-term goals to be met or any upcoming expenses that may land you in a fund crunch. Also, take stock of your needs—whether you need an additional life cover, or funds to meet expenses such as children's education or marriage. You may need funds to build a house or create a corpus for your retirement. Before you invest, keep in mind these factors as well as your risk profile. But don't forget their taxability on returns and maturity.
