Smart investment and tax tricks to use before the financial year ends

Jyoti Roy, DVP- Equity Strategist, Angel One Ltd.

As the financial year 2021-22 nears its end, it is time to reevaluate many things around the finances. You will have to look at ways to claim deductions, save taxes and boost net gains. Since the deadline is just a few days away, you have to double your efforts at managing your finances as efficiently as possible. You must make your tax-saving investment by 31st March to claim an income tax deduction.

Ideally, it is best to do the tax planning at the beginning of the year to avoid making any hasty decisions towards the end. Planning tax-saving investment at the beginning of the financial year enables you to choose suitable investments and savings products to achieve the financial goals. It also helps you avoid putting the strain on finances in one month as the investment-related expenses get bunched up.

However, if you haven’t made the investments throughout the year, a few tricks and investments can help you. Firstly, you have to assess your income for the year. It will help you figure out the amount you need to invest in the tax-saving instruments. The next step is to collect all the documents of your big purchases that may count as investments during the year. After this, calculate how much more investments you need. Once you have the figure, here are the following investment and tax tricks that you can use:

Make contributions to NPS and PPF

Contributing to the National Pension Scheme (NPS) and Public Provident Fund (PPF) are the most common ways of claiming tax benefits while saving. PPF provides double benefits of tax-free interest and yearly deductions of Rs 1.5 Lakh. NPS is a pension scheme where you can claim a tax benefit of around Rs 2 Lakh through Sections 80CCD(1), 80CCD(2), and 80CCD(1B).

Saving tax on stock investment of Rs 1 Lakh

As a long-term investor, you may be opposed to the idea of booking profits. However, you must also know that your long term capital gains will be taxed if they exceed Rs 1 Lakh. The idea here is to book the profit now if you are at the threshold of Rs 1 Lakh in LTCG. It is an intelligent move to book the gains below the threshold of Rs. 1 lakh and save on the taxes. You can buy back the stocks at the beginning of the next financial year.

Health and Life insurance premiums

One of the easiest ways to save tax is health and life insurance. Paying the health insurance premiums for policies covering your medical care are tax-deductible. It reduces your taxable income, thereby reducing tax liability. If you are a sole earner in the family paying for the parent’s health insurance policy and spouse and children, you are qualified for deduction under Section 80D of the Income Tax Act. You are allowed to claim a tax deduction of up to Rs 25,000 per financial year for self, spouse and dependent children. If you pay health insurance premium for dependent parents, you are qualified for an additional deduction of Rs 25,000 if they are not senior citizens. In case, either or both of your parents are senior citizens, this limit escalates to Rs 50,000. Effectively, one can get up to Rs 75,000 in tax deductions on purchasing a health insurance policy for self and parents.

Similarly, taking life insurance offers tax benefits under Section 80C of the Income Tax Act 1961. An individual can claim up to Rs 150,000 per year against a life insurance policy’s premium. The tax can be saved on premiums of plans for yourself, spouse or children.

Home Loan

Suppose you have taken a home loan and are now repaying the loan amount with interest. In that case, you must know that you’re eligible for tax deductions of up to Rs 1.5 Lakh on principal repayment under Section 80C and up to Rs 2 Lakh on the interest repayment under Section 24B.

While these are some of the hacks for saving taxes, you must also clear any pending tax returns that need to be filed as missing a deadline is never a good idea and only means an additional penalty. Follow the checklist and save whatever you can. For next year, plan ahead.