Amit Maheshwari , partner , Ashok Maheshwary & Associates LLP . If you have to buy such life insurance policies , it will entail long-term commitment and failure to pay premiums every year carries the risk of lapsation . So , figure out whether you can service high premiums over the long term . If you are not sure , buy a pure protection term insurance policy . The premiums will be cheaper , though they may not serve the purpose of exhausting the investment limit . To make good the shortfall , you can look at investing in other 80C instruments .
Investing in tax-inefficient 80C
4 instruments Section 80C offers a host of instruments that provide tax deductions . But , many of them come with a handicap , as they are not completely free of the tax impact . For instance , five-year tax-saver fixed deposits and National Savings Certificate ( NSC ) are eligible for deductions , but interest yielded by them is subject to tax .
Products like equity-linked savings schemes ( ELSS ) and Public Provident Fund ( PPF ), on the other hand , are exempt from taxes at all three stages of investment , accumulation and maturity . So , if you can stomach market risks and want a shorter lock-in period , you could opt for ELSS , which carries a lock-in period of three years . Look at PPF if you ’ re conservative and a patient investor , as it comes with a 15-year lock-in period . Depending on your age , you could also consider the National Pension System ( NPS ), a scheme that is capable of generating returns higher than PPF or EPF , as you can allocate up to 50-75 per cent of your contribution towards equities . Investment in NPS is eligible for deduction under the overall 80C umbrella , apart from the additional `50,000 benefit that is available under Section 80CCD ( 1B ).
The Seven Deadly Sins
Mistake Result Solution
Procrastination
Delaying making tax-saver investments until the last minute
Narrow vision
Not looking beyond Section 80C deductions
Needless borrowing
Taking loans due to cash flow crunch at year-end to make tax-saver investments
Blind faith
Blindly trusting acquaintances doubling up as agents
Unnecessary investments
Not identifying tax deductions already in the bag before setting aside funds for investments under Section 80C
Haste
Investing in an endowment plan or a Ulip in a hurry to meet the deadline
Poor choice
Investing in five-year taxsaver deposits or National Savings Certificates ( NSC ) without understanding the overall tax treatment
Wrong , counterproductive choice of instruments
Loss of opportunity to fully utilise all tax benefits available
Returns generated by the investments can never offset interest paid on loan / credit card dues , resulting in a net loss instead of tax-savings
Agents ’ product recommendations could be driven by commissions and not tax-payers ’ interests , trapping them in unsuitable investment products
Locking away of funds into 80C investments even when it is not required
Investment-cum-insurance plans entail huge premiums that have to be paid every year ; failure to arrange for funds will lead to policy lapsation
While they offer tax deduction , interest they fetch attract tax
Start early , make tax planning a part of your financial planning strategy
Look at other Sections , like 80TTA , 80D and 80E that offer deductions on savings account interest , health insurance premium and education loans
Plan your tax investments well in advance and in a staggered manner to avoid fund crunch at the end of the financial year
Do your own research , verify agents ’ claims on product features and returns on the Internet
Ascertain your EPF contribution , children ’ s tuition fees and life insurance premiums that you are already paying before making 80C investments
Do not look at such plans as tax-saving instruments ; buy only if you are confident of servicing the premiums every year over the long term
Look at instruments that are tax-free at all three stages - investment , accumulation and maturity
www . outlookmoney . com February 2018 Outlook Money 31