March 31 is here again. After two months of running around, the tax filing process is finally over.
While there is relief that things are over for one more financial year, it's important that mistakes made this year are not repeated next year. The reasons are many. For one, last-minute decisions can lead to mistakes like buying an investment product that you do not need or is too expensive.
Importantly, it is an astronomical financial stress if the entire investment process has to be completed within a couple of months. Let's understand this with a few numbers:
- Relief under Section 80C -- Rs 100,000.
- Relief under Section 80CCF (for infrastructure bonds) -- Rs 20,000.
- Relief for medical insurance (self) -- Rs 15,000 (premium).
- Relief for dependent (parents) -- Rs 20,000 (premium).
There are a host of other tax benefits that one can take advantage of, but only after proper planning. If one starts making all these investments at the end of the year, the number will shoot up to over Rs 200,000.
So tomorrow, April 1, should be the day to begin investment planning. Kartik Jhaveri, director, Transcend India, said, "Make a fresh beginning by simply creating a proper calendar of investments to be made during the year."
This is a big help because the salaried will soon have to submit details of proposed investments to their organisations. Having a clear plan will help you give the correct details. This will lead to right adjustments in salary.
For instance, under Section 80C, if you plan to invest Rs 50,000 in Public Provident Fund (PPF) or Employee Provident Fund (EPF), Rs 36,000 in equity-linked saving schemes (ELSS) and another Rs 14,000 in life insurance premiums or five-year fixed deposits, prepare a proper chart and follow it.
That is, select an ELSS with a good 10-year track record and start investing Rs 3,000 per month through a systematic investment plan. This will ensure that the target of Rs 36,000 is achieved over the year through small instalments.
Also, starting early helps get better returns. If you want to earn the maximum interest on your PPF money, invest the entire Rs 50,000 before April 5. This will allow you to earn the entire 8 per cent for 12 months on the invested amount as well the existing corpus.
In some instruments like National Savings Certificates, the interest is compounded half-yearly. This allows investors to earn slightly more than the existing rate of 8 per cent (8.16 per cent).
Purchase a medical insurance family floater at the beginning of the financial year that gives your family cover for the entire year. Renewals should also take place at the beginning of every year, ensuring that the process is smooth.
The additional limit of Rs 20,000 under Section 80CCF (for infrastructure bonds) is a good option. Though, in the past, these bonds have offered returns of as little as 5-5.5 per cent, adding the tax benefit translates into 8-8.5 per cent returns -- quite comparable with other 80C instruments.
Gaurav Mashruwala, certified financial planner, proposes a different approach, "One should forget whatever happened last year and start setting goals. Tax benefits will follow."
For example, there are benefits for children's education under Section 80C. So, when you are paying the school fees in May-June, keep an account of the expense. Similarly, if you take a loan for educating children, interest payments are tax-free under Section 80E.
Further, if you have disabled or critical dependents, there are exemptions under Section 80DD and 80DDB. The limit: Rs 40,000-Rs 60,000 under Section 80 DDB and Rs 50,000-75,000 under Section DDB.
Besides investment, start some new things that will help you save money. Jhaveri advises doing simple things like filing bank statements properly. For the self-employed, maintaining details of expenses is important.
"Create a system of getting regular reminders for payments to be made. This will help save a lot of money on extra charges and penalties that one keeps forking out because of sheer laziness or forgetfulness," said Jhaveri.