Tax-saving for FY2023-24: Don’t make these mistakes; follow 4 tips to plan last-minute investments

Section 80C is one of the most popular sections for claiming tax deductions. There are a number of instruments such as PPF, NSC, five-year bank fixed deposit (FD) where you can invest and claim tax deduction against them. But do keep in mind that the total limit of Section 80C is Rs 1.5 lakh.

If you are a salaried taxpayer, your contribution towards Employees’ Provident Fund (EPF) will also be factored in Section 80C.For instance, if your EPF contribution during the year amounted to Rs 80,000, you will only need to take care of the balance Rs 70,000 to claim Section 80C deductions.

So calculate the tax deduction limit of your existing investments before investing in new ones.

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Even if you are investing primarily to save tax, you need to check the lock-in period of your investments. All the Section 80C investments come with lock-in periods but some has longer tenure such as PPF has a lock-in period of 15 years. So, consider your short-term and long-term goals before locking your money.

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You can claim tax deductions against NPS under three sections of the Income-tax Act, 1961 in India: Sections 80CCD (1), 80CCD (1B), and 80CCD (2).

Sections 80CCD (1) allows you to claim a tax deduction of up to Rs 1.5 lakh for investing in NPS. You can claim an additional deduction of Rs 50,000 for investing in NPS under Section 80CCD (1B).

Private sector employees can invest up to 10% of the basic in NPS and claim an additional deduction under Section 80CCD(2). It is over and above the limit of Sections 80CCD (1) and Section 80CCD (1B). The limit can go up to Rs 7.5 lakh in a financial year. The limit can be up to 14% for the government sector employees.

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Do not invest in insurance-cum-investment policy to save tax. The average return from endowment plans hover around 5-6%. The benefits of a life insurance plan — guaranteed returns and tax-free maturity — are outweighed by the low returns and inflexibility of the instrument. To protect the future of your loved ones, go for pure term plans instead of moneyback policy and guaranteed return plans.

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Keep in mind that most of the deductions mentioned above are available only in the old income tax regime. If you opt for the new income regime, you will be eligible to claim benefits for investing in NPS under Section 80CCD (2).

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