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Some last-minute advice on tax saving in these trying times
This year, you face a new challenge in your tax-saving pursuit. Most tax-saving options are long-term products for whom payments need to be made for successive years.

Adhil Shetty   |     |   Published 22.03.20, 09:02 PM

If you haven’t done your tax saving for the year, there’s little time to lose. You must purchase your tax-saving investments and insurance policies before March 31 to reduce your taxes.

This year, you face a new challenge in your tax-saving pursuit. Most tax-saving options are long-term products for whom payments need to be made for successive years. For example, your health insurance policy — the premium needs to be paid annually for the continuity of coverage.

From 2020-21, you have the option of switching to the new income tax regime in which you enjoy lower taxation but lose most deductions. The new regime thus makes it pointless to buy investments whose sole purpose is tax saving.

Therefore, the ideal thing for you to do now would be to buy some of the following tax-savers. They help you save tax in this year and also remain relevant in the new financial year regardless of the regime you opt for. Most of these are also ideal for last-minute tax planners who would prefer to get this done from the comfort of their homes.

Health insurance

Never has health insurance been more critical to your life and finances. As a pandemic spreads across the globe, we’re reminded once again that our life and finances are fragile against the prospects of prolonged hospitalisation. If you don’t have health insurance, buy one without delay.

Health coverage goes well beyond tax savings. A prolonged hospitalisation, private healthcare and the treatment of critical illnesses have the potential to drain your life’s savings. So make sure all members of your family are insured.

The deductions under Section 80D are a deal sweetener — you can deduct up to Rs 25,000 for premium paid towards a policy for self, spouse and dependent children.

You can also buy coverage for non-senior dependent parents and claim another deduction of Rs 25,000. If the insured person — you, your spouse or your parents — are aged 60 or more, you can claim deductions of Rs 50,000 each for their coverage. Not just that, even if you switch over to the new regime and are able to claim deductions next year, you’ll still need health coverage. And, therefore, this is one tax-saver you can no longer afford to ignore. Just make sure your health policy covers pandemics.

Equity-linked savings scheme

This is a tax-saving investment for investors with a risk appetite looking for deductions under Section 80C. ELSS are equity mutual fund schemes marketed by most fund houses.

As an investor in any ELSS scheme, you’ll be buying a portfolio of stocks expertly selected by your scheme’s fund manager. However, this investment option is suited to investors with a risk appetite.

Your investment will rise and fall with the stock markets. Your rewards could be high, long-term returns. Of the 27 ELSS funds operating in the last 10 years, 25 have delivered returns of 8 per cent per annum or more as on March 9, 2020.

One of the best things about ELSS is the ease of investing. You can invest in monthly SIPs or through lump-sum. You can invest as little as Rs 1000 and go as high as you want to. You can start an investment now and discontinue next month if you wish to, unlike some tax-saving investments such as PPF wherein you must make minimum mandatory contributions every year.

This benefits you in case you want to save taxes now but discontinue the investment in favour of the new regime next year.

ELSS have a three-year lock-in, which is the lowest lock-in on tax-saving investments. You can buy your preferred ELSS by walking into the fund house office or by registering online and making the purchase through your KYC-compliant bank account.

Term insurance

Another tax-saving purchase you can make online without getting up from your couch.

Term insurance are pure life insurance policies with no investment benefit or maturity/surrender value. Hence, they provide large life coverage at low costs. For example, a 30-year-old woman can buy a cover of Rs 1 crore for a premium starting from around Rs 7,500 per annum. Term coverage is essential for persons with financial dependents; the policy’s sum assured can meet the dependents’ income needs for the long term.

Depending on one’s income, lifestyle, and family’s needs, one can seek a sum assured that is 10-20 times their current annual income. Term coverage can provide you tax deductions under 80C now. Like health insurance, it will continue to be useful in the new financial year, even if you switch to the new regime.

National Savings Certificate

For investors looking for capital safety, assured moderate returns, and a way to avoid the craziness of the stock markets with a one-time investment, there’s NSC. It’s a small savings scheme you can take at your local post office — just walk in with your KYC documents, make the payment, and take home your certificate.

NSC is a five-year investment currently offering returns of 7.9 per cent per annum, which makes it more attractive than the tax-saver fixed deposit which will offer you slightly lower returns.

You can buy NSCs in denominations as small as Rs 100 and go up to any amount you wish. Your investment will provide deductions under 80C, and the interest you earn in the second, third and fourth year will provide you additional deductions under 80C in those years, should you wish to use those deductions.

NSCs are lump-sum investments; you can buy one now. You don’t need to maintain the investment through annual contributions like in PPF.

These are some simple tax-saving options for the last-minute tax-planner. There’s not much time left in the month, so make sure you complete your tax-savings at the earliest.

The writer is CEO, `BankBazaar.com`

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