Come March, Section 80 C enters the popular
lexicon. We are talking about Section 80 C of the Income-Tax Act here. It allows
tax deductions of up to Rs 1 lakh in some specific investments such as Public
Provident Fund, 5-year bank fixed deposits and tax-saving mutual fund schemes,
among others.
Many taxpayers always grumble that they don't
get enough time to make an intelligent investment choice to save taxes. Financial advisors, on their part,
blame it on the habit of finalising tax-saving investments at the eleventh hour
as the main reason why many taxpayers get stuck with bad investments.
But aren't they making a big deal about Section 80? Think of it: The
section allows a maximum deduction of only Rs 1 lakh. An average taxpayer would
have claimed at least half of it if s/he is contributing to employees provident
fund — Here are the numbers: Rs 4,000 to EPF every month adds up to Rs 48,000 in
a year.
Add to that another Rs 10,000-15,000 towards
insurance premium, and you will see that one really doesn't have much to save
under Section 80. Remember, we have used conservative numbers for both EPF
contribution and insurance premium in the example.
In fact, most individuals may be paying way
above the figure in the example because they mostly prefer expensive insurance
policies with savings and
investments elements over a plain vanilla term plan.
"The importance of this section is certainly
overdone. For example, we never get to talk about this section to our clients
because most of them have already exhausted it. Many well-paid individuals need
not do anything to cover the section as their EPF and life insurance premium
take care of it," says Suresh Sadagopan, principal planner, Ladder7 Financial
Advisories. He also says the media and experts play up the importance of this
section because most people are aware of its existence.
"Most people know about only a few sections that deal with deductions. For
example, everyone knows about Section 80 D that deals in health cover premiums.
They also know tax deduction is available for repayment of home loan interest or
on donations.
But they wouldn't know sections that deal in
specific deductions like education loan or employer's contribution to NPS," adds
Sadagopan. Several financial advisors agree.
They argue that overemphasis on this section is
leading to rampant mis-selling of investments covered under it. "Most so-called
experts know that an average individual hardly totals up the numbers before shopping for
tax-saving investments.
They just give these unsuspecting individuals
some random figure and push some expensive insurance policy," says a wealth
manager, who doesn't want to be named.
He says this could explain why the insurance
policy sales zoom in the last three months of every financial year. This is a
real cause of concern because many individuals end up investing well above the
permissible Rs 1 lakh limit under Section 80C, say experts. Needless to say,
such investments don't qualify for tax deductions.
And experts say many taxpayers don't even
know about it until they meet a financial advisor who
would break the news to them. "The focus has to shift from investing to save
taxes to overall investment and saving taxes. The idea is not about just to save
taxes, but maximising returns with the help of tax breaks and meeting your
financial goals on time," says Sadagopan.
"That can happen only if one fixes financial
goals and makes regular
investments to achieve them. Once you start the process, you will realise that
chasing short-term trends, focusing alone on taxes or returns can only distract
you from your final goal. In fact, you will figure out that none of these things
will matter in the final analysis," he adds.
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