The last minute tax guide

As the financial year draws to a close, investors have very little time to plan their tax savings instruments afresh. But if you haven’t done so yet, a few last minute moves can still cut your income tax bill. From the next year onwards, investors will have more avenues, like post office schemes that qualify for income tax rebates and even an enhanced deduction on medical insurance premium if you pay for your parents.

If you haven’t done it so far, max out your Section 80C investment limit. The law provides that an investment of up to Rs 1 lakh in any of the notified schemes like the Public Provident Fund (PPF), National Savings Certificate (NSC) and Equity Linked Savings Scheme (ELSS) qualify for this deduction. Your insurance premium, too, qualifies for this deduction.

An exception is the PPF account managed by the post office and some PSU banks like the State Bank of India. Here, the investment is restricted to Rs 70,000. The advantage here is that the income accrued in your PPF account, at 8 per cent per annum, is tax-free. While the returns may not be as exciting as in a mutual fund, the money is very secure. Schemes like the NSC offer returns of 8 per cent per annum, are secure, but the income is taxable.

That apart, investments in term deposits for a minimum of five years also qualifies for exemption—but the interest income is taxable. Premiums paid on life insurance policies are also tax-deductible under Section 80C. For aggressive investors, ELSSes are an option. With the stock markets correcting, these funds are ripe for investment now. And as the money is locked-in for a period of three years, it gives sufficient time for the portfolio to perform. Out of the purview of 80C, but an equally powerful tax-saver is your home loan interest payment.

Section 24 (b) allows you to deduct interest on borrowed capital up to a limit of Rs 1.5 lakh for purchase or construction. Your principal payment is also deductible from your income up to Rs 1 lakh under Section 80C. If you are unlucky enough to have suffered short-term equity losses, you can offset the same against your short-term capital gains.

Alternatively, if you are still heavy on losses after covering all your capital gains, you can carry forward the excess losses for eight years. It can be set off against future shortterm capital gains. Your gains and losses must be computed before the financial year (2007-08) ends. “This is handy with reference to market losses, though, the carry forward happens on a case-to-case basis,” says R. Sundar, Chartered Accountant, Sundar Associates.

When you make investments, factor in your risk profile. If security is a concern, use more debt taxsaver schemes. If you are an aggressive investor, consider ELSS. As the final date looms large, hurry—and save a bundle.