Here's how you can make smart investments for last-minute tax-saving

Has the finance department at office been incessantly reminding you to submit tax-saving investment proofs while you have none? We are here to soothe your nerves and help you make the most of the last quarter of the financial year.

But before you start running helter-skelter to arrange for funds, calculate whether you actually need to save more to claim deduction. "A major mistake investors make is they don't assess whether they actually need to invest more to save tax. They forget to consider EPF, PPF, tuition fee, education loan and other expenses under their existing Section 80 C exemptions and then worry how they can save more within the cash flow that they have," says Sudhir Kaushik, co-founder and director of taxspanner.com.

Once you have understood how much you need to save, always allocate money for the investments that you need to compulsorily contribute to each year. "One must first consider investments into instruments such as EPF, PPF, NPS, life insurance premium, which require recurring contributions each year," suggests Hemant Rustagi, CEO of Wiseinvest Advisors.

Then, they can move to the traditional options such as ELSS or tax-saving mutual funds, 5-year bank fixed deposits, post-office schemes, life insurance, pension products, Sukanya Samriddhi Scheme for girl child, etc., under the Section 80 C umbrella.

However, haphazard tax-saving will impact investor's financial health. "When you are planning your tax-saving investments, you need to weave them under your overall investment umbrella and align them to your goals," suggests Sujoy Manna, vice president – products, HDFC Life Insurance.

There are many investment avenues to help you save beyond the Rs 1.5 lakh applicable under the Section 80 C.

Medical insurance
The amount you pay to get a health cover can be claimed under Section 80 D. The limits for claiming medical insurance premium have been enhanced to Rs 25,000 and 30,000 (senior citizens) for the financial year 2015-16. So, if you are paying the premium for your parents as well, you can claim upto Rs 50,000-55,000, based on their age.

NPS
You can save not just through your own savings, but using what your employer has paid for. Employer contributions to NPS up to 10% of the employee's salary qualify for an additional deduction under Section 80 CCD(2). Rejig your salary structure and ask you employer to include NPS in your package.

An additional allowance of Rs 50,000 has been granted under the Section 80 CCD, starting financial year 2015-16. So, don't make the mistake of counting it in the regular 80 C basket, where you also get a deduction of Rs 1.5 lakh for NPS contributions. You gain a tax benefit of Rs 10,000 more by investing Rs 50,000 from your pockets into NPS and claiming this under the new section 80 CCD (1b).

"NPS offers an additional benefit, but employees think it would be difficult to execute the change from EPF to NPS. Only when we explain the benefits to them and the fact that it isn't too cumbersome to rejig that they are convinced to switch to NPS. We explain to them the monetary impact of saving the Rs 25,000 additional saved would be 1 crore over a period," says Kaushik.

Rajiv Gandhi Equity Savings Scheme
Investors who have never invested into equity directly and have an annual income of upto Rs 12 lakh can claim tax benefits under RGESS under Section 80CCG. A deduction of 50% of the investment amount (capped at Rs 50,000) can be claimed over and above the 80 C limit only for the first three consecutive years.

Infrastructure Bonds
Invest in infrastructure bonds to avail tax benefits up to Rs 20,000 under Section 80CCF of income tax act. This is over and above the Rs 1.5 lakh which comes under Section 80C of IT Act.

"Instead of investing in bonds for a long-term of 15-20 years, I believe a systematic investment plan in equity schemes would be a much better bet and offer higher returns," says Rustagi. He considers equity a better asset class to beat general price rise.

"Though in the short- and medium-term equities are volatile, long-term investments should always be parked in equity. This is because over the long-term, inflation is a far bigger risk than safety of capital," Rustagi adds.

Before you invest you should not just align your overall goals to tax -saving investment, but also look at the asset-mix, suggest experts. Pranav Mishra, chief – sales & distribution, ICICI Prudential Life Insurance, says, "Young investors end up investing in debt-oriented products or fixed deposits, while older individuals invest in equity-linked instruments. They should calibrate the investments based on their age."

One should not just focus on the immediate tax benefit after investing, but beyond. Mishra explains, "Though tax exemption under Section 80 C, at the time of investment, is often considered primary by investors. We suggest considering the tax implications during the three stages i.e. while investing, during the accumulation phase and the at time of maturity."

There are other intricacies which need to be verified before investing. As Manna of HDFC Life Insurance advises, "When you are investing you should ensure that the insurance premium is not more than 10% of the sum assured (20% of the sum assured that was permitted for policies issued before March 31, 2012). Else, the maturity proceeds would be taxable."

Similarly, consider the amount you would have to contribute in the following years to keep the investment alive. For instance, if you stop paying premium for any traditional life insurance plans within two years of issuance, then the premium claimed as tax benefit under Section 80 C would be reversed.

You needn't worry if you haven't been able to submit investment proofs to your employer. The deductions for tax-saving investments can be claimed at the time of filing returns.

"In a rush to buy a tax-saving product, investors, at times, buy into a product not suited to their goals and realise it only at the time of maturity," points out Mishra.

Next year, however, one must plan for tax-saving investments ahead of time to assess the instruments better and to avoid higher taxes being deducted. This way, you would not just be able to earn interest or build funds throughout the year, but also wouldn't have to arrange lumpsum money to invest at one go.

To invest well, investors need to keep themselves abreast with information on new investment avenues such as NPS, Sukanya Samriddhi, Rajiv Gandhi Equity Savings Scheme, low-cost Ulips, etc. "If you aren't aware of the best option, seek expertise because a small fee can help you save lakhs in tax and misguided investments, which would give you sub-optimal returns," recommends Kaushik.