Well, if you want to make every penny count, capitalise on your PPF investment or avoid buying last-minute expensive insurance, start investing now. You have to follow a systematic approach to tax planning if you want to make gains from these investments than merely save on taxes.
"The best thing for an investor to follow is to invest in tax-saving instruments from April itself. The salaries shrink in the months of January and February. Investing the balance funds for savings taxes will tighten cash flows," says Suresh Sadagopan, a certified financial planner, Ladder 7 Financial Advisories.
ALIGN PLANNING WITH GOALS
Investors should link their tax saving with their investment objective. "For instance, they should not buy an insurance policy to save tax. But if they need insurance, then they should definitely consider that as it will also save tax," says Pankaj Mathpal, CFP & MD, Optima Money Managers .
HIGH SALARIED SHOULD AVOID NSC
"The net return earned from NSC becomes less attractive for individuals who fall in the high tax bracket. If an individual falls in the 30% tax bracket, he earns only 5.6% return as against 8%. Even as we are inching towards 0% inflation, retail inflation is still at around 9-10%." says Sadagopan.
ELSS COMES WITH A RISK FACTOR
While PPF and ELSS are two good choices when it comes to saving tax, the former has poor liquidity and investment in the latter involves higher risk. "Investors should understand the product, and set their goals first and invest in available tax-saving instruments based on their risk appetite," Mathpal adds. If the new DTC (Direct Taxes Code) is implemented, as proposed, then ELSS will no more be eligible for deduction under Section 80C. Those investing through SIP should mention the end date March 2012 in their application form. Do not extend the ELSS beyond March 2012 unless there is some changes in DTC. Also, opt for the growth option in ELSS.
GO FOR JOINT HOME OWNERSHIP
There is no choice when it comes to buying a house in the city. Rising real estate prices have pushed couples to apply for joint home loans. But even if you are not looking to own a house in the city, you can invest in a house in some other city and gain from tax-saving on joint loans. Just taking a join loan (co-borrower in banker's parlance) won't make you eligible for tax breaks.
Both of you can avail tax benefits on the home loan only if both of you are the coowners of the property. You have to consider the repayment capacity of each spouse while deciding the share of the loan. So, a couple can be equal owners but if their share of the loan is in the ratio of 60:40 or 70:30, the tax benefits would be shared in that proportion. Ideally, an individual in the higher tax bracket should opt for a higher ratio of the loan to save on more taxes.
"You have to get a break-up of share of the loan on a stamp paper at the beginning itself," says Vaibhav Sankla, executive direct, Adroit. Co-borrowers should enter into a simple agreement with the spouse on Rs 100 stamp paper. This agreement should basically contain the share of the ownership along with that of the home loan availed of by the couple. You need two copies of the certificate from the housing finance company (HFC) and each of you can submit copies of the certificates along with a copy of the agreement signed between the two of you.
The idea is not to treat tax savings in isolation. It should be in line with you financial goals. Buy a PPF only if you have some goal to be fulfilled after 15 years. Buy a house only of you want to stay in it or invest in real estate and look at insurance only for protecting your family.