Often, investment for most individuals begins and ends with tax planning. Although it is pertinent to avail tax breaks, this should not be the sole focus.

Think beyond tax planning

Start by jotting down your key financial objectives, the tentative time of money requirement and the corpus needed to achieve those goals. One can use tax saving investments effectively, to achieve financial goals. For example, one can take a children’s plan that also provides tax benefit. Consider the impact of inflation on your needs. After your first few working years, as income goes up, it is wise to invest beyond one’s tax saving investments to achieve your goals. Also, evaluate the life cover requirement, while planning for your taxes.

For the young

As you begin your career, you may not have visibility on your needs. In this case, set a target of corpus achievement. For example, how quickly you can hit a corpus of Rs 1 crore from tax savings investments. You can accelerate this by increasing your contribution yearly, keeping in mind salary hikes and inflation.

Having a goal makes the exercise of investing more interesting and there is always the corpus to look forward to. Having clarity will also help you keep track.

Choosing your avenues

There are a range of avenues with different levels of risk, return and liquidity. Choose an appropriate mix of investments to maintain an appropriate asset allocation and to help achieve your financial objectives. Past returns data may be misleading. Example, when markets are at a high and about to fall, equities will give you the best track record. Today, when markets are down, it could be a better time to invest with a three-year horizon. The maturity should suit the needs you are planning for. Keep in mind the tax you need to pay on the returns.

Maximising your tax saving

Identify the reimbursements available from the company and take maximum advantage of the same. Normal expenses that one incurs could help save tax. Example: Telephone/fuel reimbursements, meal vouchers and company car. A person in lower tax slabs can reduce his tax liability to nil with exemptions alone!

2. Deductions

Section 80C allows a maximum limit of Rs 1 lakh across investments ranging from provident fund, PPF, infrastructure bonds, fixed deposits (5 years or more), NSC, insurance/pension plans, unit linked insurance, equity linked savings scheme etc. It also includes tuition fees of your children and the repayment of principal on your housing loan. The interest component on your home loan has a separate limit of Rs 1.5 lakh. Medical premia upto a maximum of Rs 15,000 qualifies for deduction, with an additional Rs 15,000 for parents.

As we welcome the New Year, let us vow to plan better and ensure that we achieve maximum tax breaks — and not get caught in the last minute frenzy!

Tips for the week

• Start early so that you can do an effective financial plan, along with tax savings and evaluate various investment options.
• Some tax savings do not require you to invest, take full advantage of them.
• Understand your long-term financial goals, this is the starting point.
• Hedge your health/life risks.
• You can claim a separate deduction for medical premium of your parents. Understand time frame for contributions, and lock-in periods for investments.

EXEMPTIONS

House Rent Allowance: Minimum of - 1. Actual HRA 2. Rent Paid - 10% of Basic 3. 40a% of Basic (Non-Metros) or 50% of Basic (Metros)

Conveyance Allowance: Rs 800 / Month

Leave Travel Allowance: Two trips in a block of 4 Yrs Amount not exceeding Air Economy or Rail AC I Fare shall be for shortest distance and for a single destination

Medical Reimbursement: Rs 15,000 / Annum