Start Tax Saving in April

You should not postpone your tax saving investments till the last few days of the financial year as you might not be unable to claim the tax benefit for the year despite making the investment.

Financial Year 2019-20 that began from April is a fresh start. Your target of being eligible for up to Rs 1.5 lakh deduction by using Section 80C means you need to save and invest that same amount of money. It may look a lot of money, but if you divide it into 12 months, it’s all about Rs 12,500.

Everything is left for the last minute, and this is where decisions are taken that is not good. This financial year start tax-saving from April and have a big sigh of relief when it peak tax-saving season. In such a case, your investment may go through later on a retry but will only happen after March 31. Consequently, you would not be able to claim the tax benefit in the current financial year.

To claim tax benefit of an eligible tax-saving investment in any given year, the date of the investment needs to be within that particular financial year, i.e., from April 1 to March 31, both dates inclusive.

Plan your Tax Saving

Tax-saving avenues are known before-hand. Section 80C gives us an opportunity to lower our taxable income by Rs 1.5 lakh. Buy medical insurance and claim a deduction up to Rs 25,000 (Rs 50,000 for senior citizens) for medical insurance premium under Section 80D. You can claim additional deduction up to Rs 50,000 on home loan interest under Section 80EE, if you are first-time home buyer. An additional deduction for investment up to Rs 50,000 in National Pension System (Tier I account) is available under subsection 80CCD (1B). This is over and above the deduction of Rs 1.5 lakh available under section 80C of the Income Tax Act.

Don’t wait to save Tax

Smart investors are using routes like mutual fund Systematic Investment Plan (SIP), auto debit of the insurance premium and Public Provident Fund, or manually making payments. It is important that taxpayers start tax-planning from April or May. The amount of taxes they save can be used for something else. Many argue that even if TDS is deducted it will come back, but that may not happen before two to three months.

Investing in Equity Linked Savings Scheme (ELSS) or Unit Linked Insurance Plans (ULIPs) at the end of the financial year that means it will be a lump sum investment. A market crash soon can wipe off 10-15% of investment, at least temporarily. This is not a good investing experience. Next year, the same investor goes back to bank fixed deposits with tax saving or PPF. By repeating the tax saving from early in the year, you do not need last-minute quick fixes to save tax.

• Do tax saving investments and submit proof to your company’s HR by January, to ensure that TDS is not cut 
• Use SIP for mutual funds, auto debit for insurance premium and PPF right from April or May 

Tax planning is critical for the success of your investment options. Sound tax planning is very important for these savings to become meaningful investments. Hence, it is very important that one is not just saving tax but also investing his/her savings in the right manner to ensure optimum returns. So, don’t wait till March to plan your taxes. Act NOW.

Changes this Financial Year

The following are the key changes in tax rules that one should keep in mind for the current FY:

1. Earlier, the rebate under Section 87A was Rs 2,500 for resident individuals whose total income did not exceed Rs 350,000 per annum. This year, the rebate has been increased to Rs 12,500 for resident individuals whose total income does not exceed Rs500,000 per annum. Accordingly, in the case of resident individuals having total income up to Rs 500,000, no tax will be payable.
2. The standard deduction for salaried individuals has been increased from Rs 40,000 to Rs 50,000.
3. Earlier, an individual owning more than one self-occupied property was required to pay tax on the notional rent on the additional property/properties. From this FY, the notional rent on the additions self-occupied or vacant property will be exempt. However, the limit to claim house property loss from interest on loans taken for both the properties in aggregate will continue to be Rs 200,000. Hence, you can claim a maximum of Rs 200,000 for such properties in one FY.
4. Earlier, if you had capital gains from selling a house, you could use that money to buy only one house to get the tax exemption. This year onwards, you can buy two houses, but the capital gain amount should not exceed Rs 2 crore. Further, this benefit can be availed by an individual only once in his lifetime.
5. Till last year, banks or post offices could deduct TDS (tax deducted at source) if the interest earned for the year from deposits exceeded the threshold limit of Rs 10,000. This limit has been raised to Rs 40,000.

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