ELSS and PPF can be good last-minute tax-savers, say analysts

NPS and medical insurance are sound non-Section 80C options

Only two days remain until March 31, the deadline for making tax-saving investments for FY22. It is important that in their last-minute rush, taxpayers don’t make mistakes.

Gopal Bohra, partner, NA Shah Associates, says, “Taxpayers should first take into account their Employees’ Provident Fund (EPF) contribution, principal repaid on housing loan, insurance premiums, and children’s tuition.”

This will give them an idea on how much more they need to invest in Section 80C instruments.

Section 80C

If you are falling short, choose an instrument that is right for you. You can contribute up to Rs 1.5 lakh in a given financial year under Section 80C.

Rishad Manekia, founder and managing director, Kairos Capital, says, “For those who operate under the old tax regime, many tax-saving options qualify for deduction under
Section 80C.”

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Vishal Dhawan, board member, Association of Registered Investment Advisors (ARIA), says,   “Under Section 80C, look at equity-linked saving schemes (ELSS), Public Provident Fund (PPF), and tax-saving fixed deposits if you have a long-investment horizon.”

High expected returns from equities and low lock-in (of three years only) make ELSS a desirable option for people who want equity exposure.  Insurance-cum-investment products should be avoided. They offer low coverage and mediocre returns, besides demanding a multi-year commitment. Dhawan says, “It is best to separate investments from insurance.”

The Section 80C option you choose must not only get you a tax deduction but also fit into your current portfolio’s asset allocation. The product must also match your risk profile.

Speed is of the essence. M Barve, MB Wealth Financial Solutions says, “Since you will be in a hurry, choose something that is simple to understand and quick to execute, like ELSS or even a National Savings Certificate (NSC), depending on your financial needs and risk profile.”

Non-Section 80C options

Besides Section 80C, there are other options as well. You could invest in the National Pension System (NPS) for an additional deduction of up to Rs 50,000 under Section 80CCD(1b).

NPS offers the advantage of a very low-fund management fee and the ability to choose an allocation (between equity and debt) that suits the investor’s risk profile.

Manekia says, “However, it has a long lock-in period and you are mandatorily required to purchase an annuity for a part of the corpus at retirement.”

The tax benefit of Rs 50,000 under Section 80CCD (1b) is over and above the deduction of Rs 1.5 lakh available under Section 80C.

Buying a personal medical cover is important, even if you are covered under your office policy.

Bohra says, “Mediclaim gives twin benefits. First, it provides financial help in case of health-related emergencies in the family. Second, under Section 80D, taxpayers can claim a deduction of up to Rs 25,000 if the taxpayer is below 60 years and Rs 50,000 if the taxpayer is above 60 years.”

Things to keep in mind

Experts offered a few additional tips to last-minute investors. Barve says, “Since only two days are left, pay online and not via cheque.” You must also link your Aadhaar with PAN by March 31, 2022. Bohra says, “Doing so is mandatory for all resident taxpayers. Non-compliance may attract penal consequences and your PAN will become inoperative.”

The tax-saving instrument that you choose must fit into your asset allocation, financial goals and risk appetite.  Manekia adds, “Don’t buy a product just for the purpose of tax saving. For instance, those who don’t have financial dependents should not buy life insurance just to save tax. They can choose alternatives that suit their needs better.”
Finally, Dhawan says, “Be aware that investment in tax-saving instruments typically comes with lock-ins.”

He adds that taxpayers should begin their tax-saving investments right from April next year to avoid last-minute stresses.