The last minute tax savings guide for 2018-19

As a nation, we may be obsessed with saving as much tax as possible. But this last minute rush is what we truly enjoy. I am checking up with a few investors and guess what, they are still not done with their tax saving investments. If you are one of those, here’s your last minute tax savings guide for 2018-19.

You know how the eleventh hour is like. You become desperate to do something.

The fallout of this desperate attempt to “do something“ is not so good. You (can) end up in wrong investment products, which can send your portfolio into a disarray.

You don’t pay attention to the goal to be served by these last minute investments. There is only one thing driving the decision now – save tax, anyhow.

A few examples what direction it might take.

Manish, a Chartered Accountant, works in the taxation department of an MNC. It is a well paying job. Though working for a few years now, he has not been able to save any money so far, for various reasons. This year he decided to put some money to work. He told his father about it who got him to meet his insurance agent.

You know where is this going, right? The agent got him to buy 3 policies one of which was a Pension Plan and the other was a Guaranteed Future Income Plan. And he had to pay only for 5 years, the typical sales bait for insurance policies.

The illustrative maturity figures for the policy looked huge – 60 lakhs, 20 lakhs, etc.  There was of course no attention paid to the rate of return.

That’s not a lone case. Yet another software engineer, who has “no time to study the markets and do it by himself“, gave Rs. 2 lakhs cheque as a premium to Dhan Vriddhi ULIP. The premium has to be paid annually.

Yet another one. Meenakshi could not invest before December and thus did not provide the tax proofs. The tax is already deducted from her salary. However, she can still invest (before March 31) and while filing tax returns show this investment to claim a refund of tax.

All of them realised in time that something was not right and sought advice.

For you, here are a few tax saving tips.

Tax-saving tip #1 – Avoid insurance + investment

Simply avoid any insurance based investments including ULIPs, Pension Plans, Endowments or Money Backs. Don’t hesitate to say NO.

In case you have gone ahead and made that investment in March itself, you still have recourse.

After the receipt of the policy document, you have upto 15 days to have a free look at the policy and return it, if that is what you were not looking for. Use that free look-in period, return the policy immediately and get your money back. It is your hard earned money. Do not waste it.

How should you do it? Just call the customer care of the company and in a calm voice announce your decision. There will be no deduction when you return during this 15 day period.

When it comes to insurance, you have to buy Term Plan for Life Insurance and Mediclaim for Health Insurance. That’s it.

Tax-saving tip #2 – Don’t overload fixed income in your portfolio

Just because a PPF, NSC or a 5 year Bank FD can give you a tax-benefit, don’t rush to invest in them. Every single investment you make has to help you meet your financial goals.  Will investing in PPF, NSC or 5 year Bank FD help you fulfil your goals? You have to realise that they are debt investments and they will grow at their pace.

I know it might be too late to do such an analysis but here is a quick tip. If you are in the 30s, you can afford to take on a lot more chances than what you will be 10 or 20 years hence.

Your investments have to be geared more towards equity than debt. How much should that be, is personal, based on your goals.

Do you have zero equity or equity mutual funds in your portfolio? The next tip is for you.

Tax-saving tip #3 – Use the power of equity

If you have plans for retirement which is still 20 to 30 years away, you need not hesitate from taking exposure to equity. That too when an investment brings you an immediate tax benefit plus no taxes when you sell or withdraw your investment.

Yes, I am talking about tax-saving mutual funds or ELSS. You can read more about them in this post. There are some ideas on how to select an ELSS and some options you can consider for investing.

If you have zero equity in your portfolio, this is an opportunity you can use to introduce yourself to it via tax-saving mutual funds.

And it is super easy. Most mutual funds accept applications online on their websites with almost zero paper work.

Use the power of equity to build your long term wealth and reach your financial goals, faster.

Tax-saving tip #4 – Reduce your debt burden

Yes, if you have nothing better to do, why not prepay your home loan principal (if you have one). That counts towards Section 80C (overall limit of Rs. 1.5 lakhs) and it helps you reduce your loan burden too along with future interest.

If your overall portfolio I also realise that lack of understanding and knowledge about investment options becomes a big hindrance in making the right investment decisions. It is never too late to seek advice, but not from sellers. Seek out an investment advisor who is not interested in selling a product to you.

Still have questions? Ask.

Between you and me: Where do you stand on tax savings for this year? What did you do to save tax? Any other last minute tips you would like to share?