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Posted by Shyam as Tax
People all around are busy in looking after useful tools of investments to saves taxes. In between this, they forget few things and make some mistakes which can easily be avoided by remaining alert and cautious.
1) Consider all aspects before investing: It’s always wise to broaden the horizon and consider all the factors suiting your needs before making investment. For ex, Mr X’s, contributes of Rs. 35,000 towards EPF which is deducted by his employer. He buys another 12 year policy with an annual premium to be paid each year Rs.65, 000 to make his investment limit of Rs1lakh as per Sec 80C. With increment in his salary his PF contribution increased to Rs.42, 000. The problem here is, Mr. X has to continue paying the annual premium of Rs. 65,000 making his total contribution, Rs. 1, 07,000. However, he is liable to receive a deduction of Rs. 1lakh only on annual basis. Well this problem will continue in future with further increment in his salary.
If he would have taken a wise decision and invested Rs. 65,000 in other instruments like, ELSS, PPF, NSC, etc which does not calls for compulsory annual investment then he would have saved more and availed tax benefits.
2) All insurance policies don’t qualify for tax deduction: All life insurance policies are not eligible for tax benefits u/s 80C. Well do make a note that the life risk cover should be at least 5 times of the premium paid by you. Few plans give life risk cover of 5 times of the premium in the 1st year. But gradually from 2nd year the cover reduces to 1.25 times of the premium paid. Here you would be availing tax benefits in the 1st year only.
3) Watch other items qualifying for tax deduction: Consider all items eligible for tax deduction u/s 80C. Tuition fees paid towards your children’s education is one such item which we miss out and it also eligible for tax deduction. If you a salaried employee remember that HRA and conveyance allowance would also qualify for deductions and accordingly decide to invest your corpus in other tax saving instruments eligible, u/s 80C.
4) Be cautious before investing: Donations under section 80G qualify for tax deduction. Amount donated in NGO’s should be for the right purpose and right cause is the most important factor. Do remember that only 50% of the donation amount is eligible for tax deduction.
5) Pragmatic approach: All the investment tools like, PPF, LIP, NSC, ELSS, Bank FD’s, etc qualify for tax deduction u/s 80C. Each of them has their own pros and cons. Graph out your investment plans before investing. Running after a product generating you high guaranteed tax free return won’t ever be possible. A single product can never fulfil all the criteria’s. Be realistic and choose the product as per your needs.
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