Last-minute tax tips

Last February, Prem Kohli, 54, a government employee, realised that he was falling short of his Section 80C obligations by Rs 25,000. No wonder he was glad when an insurance agent offered him a unit-linked insurance policy (Ulip) with an annual premium of Rs 25,000. The agent said the policy would give him 12 per cent annually.

Later, he realised that the amount could have been used to pre-pay a part of his home loan and the benefit would have been the same. "I will be paying for this mistake for three more years. If I surrender the Ulip now, I will lose the entire money," said Kohli.

Tax planning is an annual exercise. Yet, the salaried do it in December-January when their companies seek investment details. If they do not provide the details, tax is deducted from their salary. The result: Many end up making investments they later regret.

It is best to start planning at the beginning of the year. But if you are late, here are some quick-fix tips. First, know your tax liability. Here are the basic tax slabs - for individuals, the basic exemption is Rs 1.6 lakh. There is 10 per cent tax on income from Rs 1.6 lakh to Rs 3 lakh. Between Rs 3 lakh and Rs 5 lakh, the tax rate is 20 per cent, while income above Rs 5 lakh attracts 30 per cent tax.

For senior citizens and women, the basic exemption is Rs 2.4 lakh and Rs 1.9 lakh, respectively. Other slabs are similar.

Existing investments, such as contribution to the Employees' Provident Fund, repayment of housing loan and premiums for life insurance and health insurance can be used for deductions under various sections. "For the Rs 1-lakh deduction under Section 80C, forced deductions such as contribution to the Employees' Provident Fund as well as insurance premiums qualify. As a result, most have to invest just Rs 40,000 - 50,000," said Malhar Majumder, a financial planner. Following are sections under which you can claim deductions.

Section 80C: This includes investments and expenses eligible for deduction from the total income. For most of these, the cumulative limit is Rs 1 lakh. There are many investment options -- equity-linked saving schemes, National Savings Certificate, Ulips and infrastructure bonds.

Section 80CCD: This allows an employee to deduct from the total income his contribution towards a pension scheme, subject to a cap of 10 per cent of the salary. An example is the New Pension Scheme or pension schemes for government employees run by the employer.

Section 80CCC: Under this, deduction is available for an investment in an annuity plan.

Section 80D: Premium for health insurance for spouse and children is eligible for a deduction up to Rs 15,000. Another Rs 15,000 can be deducted in case of mediclaim for parents. Health insurance bought for parents who are senior citizens is capped at Rs 20,000. "This is one area that remains unutilised as people don't buy medical insurance. The least one can do is to go for riders on existing insurance plans and claim deduction under this Section," said Majumder.

Source: Business Standard