Here are the four last-minute tax saving options

Ideally, taxpayers should avoid hasty investment decisions just to reduce their tax liability. However, if you’re indeed running out of time, here are some go-to options that can help meet most long-term financial goals

The deadline to file tax returns is fast approaching, and many among us will spend the last few days rummaging for tax-saving investment options. Ideally, taxpayers should avoid hasty investment decisions just to reduce their tax liability to avoid making costly mistakes.

Investment is essential to growing your wealth over time, and they must align with your short and long-term financial goals to secure your financial future. You must also closely scrutinize each and every investment tool, gauge the risks involved and asses the value of its inflation-and-tax-adjusted returns before taking the plunge.

However, if you’re indeed running out of time, here are some go-to options that require minimal paperwork and can help meet most long-term financial goals:

The Equity Linked Savings Schemes are popular investment tools not just to save tax but also to generate decent-to-great returns. These are mostly equity-oriented mutual funds with a minimum lock-in period of 3 years and you can start your investments for as little as Rs. 500. Most importantly, you can claim tax deductions on ELSS investments of up to Rs. 1.5 lakh under Section 80C.

According to the Crisil AMFI ELSS Fund Performance Index, the average 3-year and 5-year returns for the entire ELSS marketplace till March 28, 2018, has been 8.41% and 18.24% respectively.

Starting an ELSS investment is quite convenient as you simply need to apply online or reach out to your bank or any mutual fund house. And while the 3-year lock-in will also ensure forced savings, this is lower than other 80C tax-savers like the Public Provident Fund. Plus, taxpayers can benefit from its flexible nature as both lump sum or SIPs are allowed.  ELSS investments are tax-efficient too as only capital gains over Rs. 1 lakh are taxed.

That being said, ELSS are still market-linked investment instruments, and so the risk factor cannot be ruled out completely. Also, past performance is no guarantee of future returns, so you’ll be well-advised to do thorough research before making a decision.

If you’ve got some surplus funds gathering dust in your savings account, you may want to invest in a 5-year fixed deposit and claim tax deductions up to Rs 1.5 lakh u/s 80C. FDs are low-risk investment instruments with guaranteed returns anywhere between 6% p.a. to 7.2% p.a. for regular deposits (up to 7.70% p.a. for senior citizen deposits). And nowadays FD accounts can be opened in minutes through the online banking portals of most of the banks.

However, even if FD returns are greater than a normal savings account, they may not be enough to beat inflation in the long run -- especially when you consider the fact that FD returns are completely taxable. Plus, you don’t have access to your FD funds during the tenure which might trigger a liquidity issue. As such, FDs are great investment options only for forced savings or as the low-risk component of a diversified investment portfolio. Go for them only if you’re okay not having the money for 5 years, and if they augur well with your long-term financial goals.

Getting a life insurance policy is an extremely important financial step to secure the future of your family members after your demise, and you should seriously consider signing up for one if you haven’t done so yet.  You can easily do so by applying online. And you can claim tax deductions against your life insurance policy premium of up to Rs. 1.5 lakhs u/s 80C.

Although there are many types of life insurance policies that you can choose from, a basic term insurance plan can be a good option, mainly owing to its no-frills nature (to provide financial protection in your absence) and cost-effectiveness. For example, a 30-year-old non-smoker male from a metro city with an annual income of Rs. 5 lakh can get a term plan for 30 years with a basic cover of Rs. 50 lakh with annual premiums beginning from around Rs. 4,222. You can also go for add-ons like inbuilt terminal illness benefit, critical illness benefit, income benefit on an accidental disability, whole life cover, waiver of premium on disability, etc. but that would increase the premium amount.

You’ll be well-advised to go for coverage amount that’s at least 10 times your annual income to ensure your family members are well-taken care off after your demise. There are other comprehensive insurance policies too (like endowment plans) with additional benefits like periodic paybacks, but because of their inbuilt investment benefits, they charge a much higher premium for the same level of coverage that a term plan might provide.

Healthcare, especially if it involves hospitalization, is an expensive affair and getting a health insurance plan is a must if you don’t want to drain your savings or break your investments while tackling an unanticipated medical complication. And it makes all the more sense when you can claim tax deductions of up to Rs. 1 lakh against health insurance premiums u/s 80D.

So, if you’re a young individual without any pre-existing health condition seeking a nominal coverage, you may be able to start a policy quickly through an online application. However, if you’re looking for extensive coverage or want to add your parents as beneficiaries, the application process might take a few days due to mandatory health checkups. So, factor in that if you’re looking to get a medical plan before the tax filing deadline.

Hope our tips will help you make some smart and informed financial decisions as you look to reduce your tax liability. But be mindful of carefully analyzing the options so that even your last-minute decisions augur well for your journey to achieve financial freedom.

The writer is CEO, Bankbazaar.com