Your employer is asking for proof of savings and you are in a hurry to sink some money somewhere to get the full benefits of tax deductions. Experts advise you to stop and think a little.
Financial planner and director of A Cutting Edge, Gaurav Mashruwala says, “The need of the hour is to think of your financial goals instead of your tax saving goals. What if you are late, the process of sitting and thinking it out will only take half an hour to an hour.”
Mashruwala stresses that the income tax laws of the country provide tax relief for almost all of our life needs and hence if one focuses on life goals, then tax benefits follow automatically. “Housing, retirement planning, children’s education, a disabled family member - everything is covered,” he adds.
The message here is that even when you have two months to go and have some money to invest, think what you need. “If you have some money that you can keep away for seven or eight years, then put it in equity-linked savings scheme.
If you think it should help you in your retirement planning, and then put it in a retirement product. But do not ever de-link your tax goals from your financial goals.”
Anish B Mehta of Haribhakti & Company feels that even now there is a low level of awareness of taxation issues in India. If people are aware, they are not eager to comply with the laws. “The approach of the income tax department also adds to this and people think that they may be harassed if they expose themselves to the department.”
“People think of income tax as a tedious and time consuming matter and they do not take it seriously. Also, some businessmen are always on the lookout for ways to pay less tax,” he added. Mehta outlined the things that one needs to do now to be tax compliant.
For the salaried
If you are in a hurry, the best way is to go for bank fixed deposits that lock up the money for three to five years. The post office savings schemes are also all-time favourites. One can also invest in a mutual fund in multiples of Rs 5,000.
One has to go through all the benefits that can be availed under Section 80c and make sure nothing is missed. Life insurance, equity linked savings schemes, post office savings and housing loan principal repayment come under this. Then, Mediclaim under Section 80D and house rent allowance as well as interest repayment on housing loans are eligible for tax deductions.
If you have travelled and taken leave travel allowance, then you must also submit the proof of travel for that.
“One should ensure that benefits are taken under all the basic deductions. It is important that all the relevant documents are in hand. The receipts for all the savings made as well as rent paid and money paid for Mediclaim,” says Mehta.
He adds, “By the end of February, these documents should be ready and should be submitted to the employer so that they are able to provide the correct benefits from tax deducted at source.”
For the businessman
For the businessman and the professional it is a different set of worries. “There are a lot of expenses that can be accounted for as business expenses like travel, conveyance, telephone, stationery. You can also claim depreciation on two-wheelers, four-wheelers and computers,” says Mehta.
He adds, “If you have a common mobile phone and vehicle for personal use as well as business use, then charge depreciation in a moderate manner or else there could be problem when the tax man looks at your returns.”
One must remember that it is important to maintain books of accounts if the income is above Rs 1.20 lakh. Further, if the professional’s income crosses Rs 10 lakh and for a business if the turnover crosses Rs 40 lakh, then a compulsory tax audit must be conducted through an outsider.