How to plan taxes in 10 days

The 31 March deadline is just days away, but many taxpayers are yet to sew up their tax planning for the year. Either they were unfamiliar with the tax rules, confused by the array of options or just plain lazy. Whatever be the reason, they are now sitting ducks for unscrupulous distributors and financial advisers who capitalise on the approaching deadline and palm off high-cost investments to unsuspecting investors.

As a first step, calculate how much more you need to invest. Many taxpayers don't know that tuition fees of up to two children is eligible for deduction under Section 80C. Also, the principal portion of the home loan EMI and the stamp duty and the registration charges paid for a house bought during the year are all eligible for the deduction. These, and the contribution to the PF, take care of the tax planning of many individuals.

Put small amount in ELSS

ELSS funds are low on charges, fairly transparent, offer high liquidity, the returns are tax-free and they have the potential to create wealth. Also, you are under no compulsion to make subsequent investments. Investing in ELSS funds is easy because you can apply online. Many fund houses even pick up KYC documents from your residence. You can also get your KYC done online.

At the same time, studies have shown that a staggered approach works best when investing in equity funds. Investors who took the SIP route in top ELSS funds in the past five years, have made more money than those who waited and invested lump sum in March. It's too late to take the SIP route now and investing a large sum at one go can be risky. We suggest you put only a small amount in ELSS at this stage. It's best to start an SIP in an ELSS fund after April.

PPF and FDs are safe bets

Unlike the ELSS funds, you can invest blindly in the PPF. The rate has been reduced to 8.1% but since it is tax free, the PPF is still better than bank FDs. If you already have a PPF account, just put the remaining portion of your Sec 80C limit in it and be done with it. Opening a new account at this stage may not be feasible if you have to submit proof of investment this week. Even if you manage to open an account, you will be cutting it too fine. If your investment cheque is not encashed by 31 March due to any reason, you may be denied the deduction for this financial year.

If you don't have a PPF account, go for tax-saving FDs or NSCs. The interest is fully taxable, which brings down the effective post-tax returns in the 30% tax bracket to less than 6%. However, with just 10 days left to go, they could be good options to save tax in a hurry. You will earn low returns, but there are no hidden charges or any compulsion to invest in subsequent years.

Avoid multi-year commitments

March is open season for salespersons masquerading as financial advisers. They will push you to buy insurance policies that can become millstones around your neck. Don't sign up for insurance policies in a hurry. To make things easier for the buyer, the agent even does the paperwork. All the buyer has to do is sign the application form and write a cheque. But any investment that requires a multi-year commitment must be assessed in detail, so don't let the agent force you into a decision.

Experts advise against mixing insurance with investment. Buy a term plan for insuring yourself and invest in other more lucrative options than a traditional insurance policy that offers 6-7% returns. A costly insurance policy prevents you from investing for other goals. If you are paying a very high premium, it is advisable to turn the policy into a paid up plan.