As the financial year-end nears, a lot of you may be in a hurry to make tax-saving investments. Company deadlines to submit proofs may also be on your mind. All this means you might just end up finding some scheme that qualifies for the deduction. But if you realize the amount of your total income that goes into saving taxes, you would pay more attention to where you are investing, rather than finding the first option to save tax. In this regard, here are a few things that you need to keep in mind.
- It grows into a substantial amount of corpus
The majority of the investments that qualify for tax-saving come under the 80C section of the income tax act. This currently has an upper limit of Rs.150,000 but this limit has changed over the years. An additional deduction of Rs.50,000 invested in NPS was introduced in 2017. Keeping that aside, for now, if you had made use of the entire deduction that was available under 80C, you would have invested the following amounts.
We can see that you would have invested Rs.7 lakhs in the last 5 years and Rs.16 lakhs in the last 15 years if you had diligently exercised the tax-saving option. If you were to invest this amount, wouldn’t you pay more attention to where you are investing?
- Weighing your options
You have a range of options that help you save taxes. From PPF, a debt product with a lock-in of 15 years, to ELSS Mutual Funds, an equity product with a lock-in of 3 years, they vary significantly. Post office schemes, life insurance schemes, bank deposits, the choices just don’t end. Some post office schemes are for specific purposes like Sukanya Samriddhi account for the welfare of daughters and Senior Citizens Tax Savings Schemes especially benefitting people over 60 years of age. But when all you worry about in the month of March is to pay lesser taxes, you may not sit down to fully understand your choices.
What you need to do is to evaluate your options keeping in mind the use of the money. The shortest lock-in period of 3 years in ELSS may sound attractive if you’re the kind who is averse to keeping money locked. But ELSS being an equity product requires a higher risk appetite and a longer time frame. On the other extreme, if you take comfort in the guaranteed interest of PPF, you also need to remember that it is locked-in for 15 full years. Try and understand your existing allocation, if you’re already overboard on debt and want to build wealth, ELSS investments would be appropriate. On the other hand, if you have enough equity exposure, you should consider lower risk bank FDs, PPF and post office schemes.
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