Tips to save taxes by making prudent investments in this fiscal

During the Union Budget 2017, the Finance Minister Arun Jaitley, in a bold move, announced tax measures that would ensure more money in the hands of the taxpayers. As per this Budget, the income tax rates for the individuals whose earnings are Rs 2.5 lakh to Rs 5 lakh have been reduced from 10% to 5%. Those taxpayers whose income is more than Rs 5 lakh would also receive slight benefits.

Similarly, to curb the false HRA (house rent allowance) claims where the payment of rent is more than Rs 50,000 per month, the government wants to supplement it with 5% TDS (tax deducted at source).

Deducting the TDS on house rent will mean a tax trail that could be examined easily by the income tax department.

This measure is introduced as the previous requirement to furnish the PAN details of the landlord was being misused while claiming the benefits of HRA. Thus we see that the Budget has many provisions which will close the gap between tax paid and tax supposed to be collected, and reduce tax evasion.

Personal tax planning in 2017
Now, let’s look at how you can save on taxes by making prudent investments in the coming days.

For most of the taxpayers, ease of investing is the key factor. FD (fixed deposits) tops the list on this front. With just a few clicks your investment is done, and the insurance agents, too, help in making the process easier by doing all the required paperwork.

As an investor, you are required just to sign over the dotted lines. But the real cost of this comfort is high. FDs fall in the 30% tax bracket and the post-tax rate of return from FD is sometimes less than 5%.

So unless you are in the 10% bracket and and a senior citizen, FD may be a poor choice of investment. Life insurance plans provide meager returns, even as the investor is required to continue his/her policy till the maturity.

If you are looking to invest for tax saving purposes, the following are some of the popular choices for FY 2017-18, that also provide great returns:

PPF (Public Provident Fund)
Individuals who use their savings for investment in PPF see returns in the long-term. It is a great way to save for a rainy day in the future, but be aware that it does not give you instant returns.

Besides, the lock-in period is high and rate of returns are reset every quarter. Almost all the major banks in the country offer this facility to their customers and the income from interest on PPF accounts is exempt from taxation.

Health insurance
Under section 80D of the IT Act, you can claim a medical benefit of up to Rs 25,000 per financial year for you health, and also include your spouse and your children in the plan.
If you wish, you can also extend the insurance to cover your parents and you can claim an additional deduction of Rs 30,000.

NSC (National Saving Certificates)
NSCs are similar to tax saving fixed deposits. The only difference is that the returns offered by NSCs are lesser when compared to fixed deposits. However, NSCs are considered as one of the safest investment options because the fund is in the custody of the Government of India.  Investments made in NSCs are applicable for deductions u/s 80C of the Income Tax Act, 1961.

ELSS fund
An ELSS (equity linked savings scheme) fund is one of the best short-term savings that you can make. While other saving options like PPF (public provident fund) have a long lock-in period, ELSS can give you returns in just three years, with 100% tax exemption on the returns.

Under section 80C, you can invest up to Rs 1,50,000 in savings and a top performing ELSS fund is a great way to do that.

There may be some risks involved (equity linked), but if you do your market research thoroughly and choose well, then you shouldn’t have any cause to worry.

Investing might seem tempting, don’t blindly put your money in the financial instruments for the sole purpose of saving tax.

Use online tax savings tools like ClearSave for achieving your financial goals.

The Union Budget 2017 has provided an additional Rs 12,500 to the taxpayers this year by reducing their tax liability, and by investing wisely one can reap the benefits for a long-term.

(The writer is Founder and CEO, ClearTax.com)