As you are aware, deduction is available under Section 80C upto Rs 1.5 lakh for various specified investments and making such investments mean that the eligible amount is reduced from the taxable income of the individual. While making use of the entire limit is a good thing often there are situations where the individual does not look carefully at the amount that is being invested with the end result that this ends up being far higher than what is actually required.
We look at how the additional amount can be directed towards where they can earn a higher rate of return and not remain locked up for tax savings that do not actually happen.
Ø Planning is essential
Ø A step that will help in controlling the amount that goes towards the Section 80C deduction is that of planning. The difference between a situation where there is no planning and where some efforts are made to control the investments can be significant. If there is no planning then there is no idea of the kind of amounts that are going towards this benefit. In fact there is also the likelihood that the individual is missing out on several items that might actually be doing its jobs but is not getting reflected in the workings. A very simple example of this is the Employees Provident Fund (EPF). The contribution of the employee towards the fund is counted as an eligible investment under Section 80C but this is often not considered in the workings due to which it looks as if a large investment still needs to be made which is not the case. The introduction of some elements of planning will ensure that the overall situation is clear and that one is able to know the exact amount that needs to be directed towards new investments.
Ø Recurring investments
Ø There is a common mistake that a lot of people undertake and this is that they end up choosing some option for tax deduction that has a recurring element of investment present in it. This means that every year a specific sum would have to be directed towards this area and when this actually happens then this can increase the pressure on the finances as well as lead to overshooting of the target investment figure. An example of this is the premium that is paid on life insurance policies where there has to be a premium paid each year. When this happens then it is likely that the overall limit is being achieved and one would also need to ensure that this aspect is being considered in the workings. If you end up adding such recurring investments regularly then this can lead to a lot of commitments that will result in the limits being breached.
Ø The process of reviewing the amounts that are going towards the Section 80C investment at various points during the year would ensure that there is a clear idea of the progress that is being made on this front. This will avoid some last minute rush investments where these could turn out to be a problem on several fronts. One is that they could put pressure on finances at the end of the financial year while at the same time there can also be a question mark on the effectiveness of the instruments chosen as it might not give sufficient time for the individual to space out the investments resulting in a higher risk that begins from the time of the investment itself.
CA JATIN TAGRA
Jatin Tagra & Co.
Mobile- 9313966063, 9953140464