• Notification Date: 20-03-2024
• Notification No: N/A

Last-minute Income Tax-related Hacks to Save More Tax this Financial Year

With the tax filing deadline approaching, the following hacks and tips will help you formulate strategies to reduce your taxable income and potentially claim valuable deductions.

Here are a few of the last-minute tax-saving instruments to reduce your taxable income under the old tax regime and save on taxes before the end of the financial year.

Public Provident Fund (PPF): It is a government-backed, long-term saving scheme popular in India for its safety, guaranteed returns, and tax benefits. It offers an attractive interest rate (currently 7.1% as of February 2024) compounded annually, providing steady growth for your investment. 

Suresh Surana, Founder of RSM India, said, “Investing in a PPF account allows taxpayers to claim deductions under Section 80C of the Income Tax Act, 1961, up to a maximum limit of Rs 1.5 lakh per financial year. Further, PPF contributions are eligible for tax exemption. The interest earned on PPF and the maturity amount are also tax-free.”

Equity Linked Savings Scheme (ELSS): This type of mutual fund scheme offers a unique combination of wealth creation and tax benefits. Primarily, it invests a major portion of its corpus (at least 65%) in equities, aiming for potentially high returns in the long run. But what truly sets ELSS apart is its ability to help you save taxes: investments up to Rs. 1.5 lakh per year qualify for deductions under Section 80C of the Income Tax Act, potentially reducing your tax liability significantly. However, there's a trade-off.

“Investments in ELSS funds qualify for a deduction u/s 80C of income tax act of up to Rs 1.5 lakh in a financial year. However, it is pertinent to note that such ELSS funds have a lock-in period of 3 years,” said Surana.

National Pension System (NPS): NPS contributions qualify for deductions under Section 80CCD(1) of the IT Act under the cumulative limit of Rs. 150,000. Taxpayers can claim an additional deduction of up to Rs. 50,000 u/s 80CCD(1B) for contributions made towards NPS. This allows for a total deduction of up to Rs. 2 lakh in a financial year.

Tax-saving Fixed Deposits (FDs): Banks offer tax-saving FDs with a lock-in period of 5 years. Investments in such tax-saving FDs qualify for deductions u/s 80C, subject to the overall limit of Rs. 1.5 lakh. However, interest earned on such tax-saving FDs is taxable.

Senior Citizen Saving Scheme (SCSS): It is a scheme for senior citizens aged 60 years and above. Investments in SCSS qualify for deductions under Section 80C, up to Rs 1.5 lakh limit. The scheme comes with a maturity period of 5 years and offers quarterly interest payouts.

As of the March end quarter, the SCSS will provide an interest rate of 8.20% per annum, making it one of the highest interest-earning options among fixed-income investments. The minimum investment you can make is of Rs 1,000 and a maximum of Rs 30 lakh in a single account or jointly with your spouse.

Sukanya Samriddhi Yojana (SSY): SSY is a savings scheme for female children, offering tax benefits u/s 80C. Contributions to SSY accounts are eligible for deductions, and the interest earned on such accounts is tax-free. You can open an account for girls below the age of 10 years.

Life Insurance Premiums enjoy deductions under Section 80C of the Income Tax Act, with a maximum limit of Rs 1.5 lakh annually. This applies to various life insurance plans, including term plans, endowment plans, and ULIPs. However, there are conditions: the premium must not exceed 10% of the sum assured for an insurance plan and the policy must be active for at least 2 years to avoid reversing the deduction.

Health Insurance Premiums paid towards health insurance policies for self, spouse, children, and parents qualify for deductions under Section 80D of the Income Tax Act. You can allege deductions of up to Rs 25,000 (Rs 50,000 for senior citizens) for health insurance premiums. Remember, the specific deductions and eligibility criteria may differ depending on your individual circumstances, so consulting a tax advisor is recommended for personalised guidance.

Carefully consider your needs and tax situation to choose the right policies and maximise your tax savings. Additionally, individuals should review their tax-saving investments in the context of their overall financial plan.