How to save on taxes at the last minute

Who doesn't want to save on tax?

Those who are still to make their investments before March 31, 2011 should try and avoid investing in wrong products.

Here is a last-minute checklist for this year's tax saving vehicles:

First on the list

For saving tax under payments or investments under section 80C up to Rs 1 lakh, consider the following:

* Salaried employees' contribution to the Employee Provident Fund (EPF) is an eligible tax saving investment under section 80C. As this is a compulsory deduction, this should be the first investment to be considered.

* Payments made during the year for tuition fees for two children and annual repayment of housing loan.

* Choose both fixed income and market-linked investments. Public Provident Fund (PPF), National Savings Certificate (NSC), Tax Savings Bank Fixed Deposit can be part of fixed income investments.

* Equity Linked Savings Scheme (ELSS) – Mutual Fund and Unit Linked Insurance Plans provide for market-linked investments

Additional deduction

Use the additional deduction under section 80CCF on investments up to Rs 20, 000. An investment in a long-term infrastructure bond can be considered to avail of this. It is suggested that investment in these bonds should be made only on utilising the deduction available under section 80C as those investments offer benefits of market-linked returns, low lock-in period and a tax-free return in most cases.

Health insurance

You can save tax on premiums paid towards a health insurance plan on the health of self, spouse, dependent parents and dependent children under section 80D. Health insurance provides security against unanticipated hospitalisation expenses. The Income Tax Act provides for additional deduction on purchase of health insurance. A maximum of Rs 35,000 is allowed as a deduction as under:

Rs 15,000: Premium for policies on spouse, children and self;

Rs 15,000: Premium towards policies for dependent parents (Rs 20,000 if parents are senior citizens).

It is important that a well thought-out tax plan forms part of the financial plan that can be used to leverage wealth and grow that wealth in a very tax-advantaged, diversified manner.

(The author is Vice-President, Product Advisory Group, ICICI Securities Ltd.)

Disclaimer: All the views expressed in the article reflect the author's view about any or all of the financial products mentioned.

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