As I am doing taxes for the recently concluded financial year, I am realizing how much of tax saving one would be forgoing once you retire :). Without income there is no more section 80C deductions, no more savings from interest paid towards home loan via section 24, no exemptions for HRA under section 80GG. These things only hit you once you retire. Of course I went into retirement knowing that, so nothing to worry, but you don’t realize these until you do your taxes. During your earning phase, every paycheck is a reminder for saving taxes and claiming as much deductions as possible.
If you are still working, make sure you are making the most of your tax deductions. Of course don’t take that as an indication to invest in dubious or bad investments. Keep it really simple. Max out your section 24 where possible. As your home loan ages, the interest portion of your EMI starts to decline. Consider increasing your EMI (reducing the loan tenure) if you are planning early retirement. But the issue with EMI is that when you increase it, the principal portion of it also keeps increasing. While the limit on deductions for your interest is Rs. 2L, the deductions for your principle is stuck at Rs. 1.5L under section 80C. And a bunch of things fall under it, including your EPF, child’s school fees etc, so there isn’t much left over for the home loan. You will have to do the juggling game to maximize section 24 and section 80C deductions.
If you are the lucky few who don’t have a home loan, you should invest in ELSS if there is anything left over in section 80C. In this case you will probably claim section 80GG deductions. Do claim your medical insurance premium payment deductions under section 80D. If your employer is providing medical insurance and you do not have additional insurance then you don’t get to take the deduction of course. Take your section 80DDB deduction for your medical expenses, especially if you have senior parents. If you made any qualifying donations, do take the section 80G deductions. Finally take your deductions for interest income under section 80 TTB. Don’t go overboard and invest in all kinds of investments like NPS, etc just for the sake of saving taxes. Understand the limitations of it first.
I do not advice trying to max out on tax savings. Most of the time people invest in the last minute to save taxes, or invest in obscure or useless investment vehicles in this pursuit. Don’t be that person. First think of all the things that you need and based on that check if there is a way to save taxes. Not the other way around. Don’t go about buying a second real estate property just to maximize section 24. Usually it is more prudent, and long lasting to put the time and effort into increasing savings and reducing expenses instead of maximizing tax savings. It is the tax filing season and that got me thinking about taxes, now back to my ITR.