That ‘mitochondria is the powerhouse of the cell’ and that ‘every action has an equal and opposite reaction’ may still be ingrained in our adult brains but most of us feel at sea when we have to plan taxes and manage money. For women the issue may be more complicated because the realm of money management itself has been pretty unreachable for them owing to patriarchal notions of this being completely up the alley of men. Issues like the gender pay gap, caregiving and maternal responsibilities make it harder for many women to manage their finances efficiently.
While winds of change have started billowing and more and more women are waking up to the need of holding the reins of the finances, understanding the tax game still continues to be a conundrum. Also, given that our education systems never throw light on why the government claims portions of our money and how it impacts our finances, women and men alike are habituated to blindly signing the dotted line at the end of the financial year.
Nisha Singh (name changed), a 32-year-old who works as an architect in Delhi shares that in the early days as a working professional, she was blissfully unaware of the importance of tax planning. “For the first two years or so, I was filing my taxes by myself – I thought I could do it myself by Googling stuff and a few hits and misses wouldn’t do much harm. However, a conversation with my boyfriend burst the bubble. I had paid an exorbitant amount in taxes for two years straight which I could have easily avoided by investing in tax savers. Before that – as laughable – as it sounds – I had no idea about the existence of tax savers,” Singh narrates.
What Singh faced is too common and often goes unacknowledged. When she was shown the complete picture of the leakages due to excess taxes on her finances by her partner, Singh reminisces that there was a sharp sense of guilt and shame. “My first reaction was ‘How could I be so ignorant!’ which quickly morphed to the dangerous confirmation bias ‘Maybe after all, women can’t manage their money.’ Thankfully, my partner helped me get rid of that problematic notion and guided me in the early days of my financial management journey. When I spoke to my female friends about this, they shared similar experiences of being unaware of the implication of taxes and then feeling incapable of handling it by themselves,” she says.
Often, when women get inducted into the folds of financial inclusion, the focus seems to rest on the importance of saving, investing and gathering knowledge about various asset classes. Tax planning tends to emerge later in the picture and in many cases, gets ignored because it may seem too intimidating to figure out taxes. Consequently, when the end of the financial year approaches and the tax authorities start sending repeated reminders, many tend to randomly invest in various instruments so that they can claim tax deductions. However, this move can be counterproductive and the risk of ending up investing in products that do not align with your risk profile and your goals is very real. Hence, it is imperative to have a clear idea at the beginning of the financial year itself about the different ways in which you can reduce your tax liabilities.
Preeti Zende, founder of Apna Dhan Financial Services elaborates “Many taxpayers have a tendency to plan their taxes in the last month of the financial year i.e., March. This last minute scramble to save taxes can prove to be a costly mistake. Tax planning should be done with due diligence and by allocating proper time to study the pros and cons of the financial products which are available under different Sections of the Income Tax Act for tax-saving purposes.”
Zende explains that due deliberation is needed for tax planning because it is common to make the mistake of investing in financial products just for the sake of saving taxes which otherwise turn out to be unproductive. “Here is an example – I feel missing investment and insurance isn’t a great idea. It is better to buy term plan insurance for insurance needs and invest in mutual funds for wealth creation. For tax saving, ELSS mutual funds can be a good option. An Equity Linked Savings Scheme (ELSS) is an open-ended mutual fund that doesn’t just help you save tax, but also gives you an opportunity to grow your money. It qualifies for tax exemptions under section (u/s) 80C of the Indian Income Tax Act up to 1.5L investment. ELSS schemes are a category of mutual funds promoted by the government in order to encourage long-term equity investments. Under this scheme, most of the fund corpus is invested in equities or equity-related products.”
Zende says along with ELSS funds, one can also invest in other investment products such as PPF, EPF, and NPS for an 80 C deduction. “ELSS is pure equity investment, EPF, and PPF are pure debt products whereas NPS is considered as a hybrid product. So the combination of these is a good strategy for tax planning. NPS also provides an additional 50k benefit under section 80CCD (1B). You can also claim your health insurance premium under section 80 D and insurance premium paid for pension plans offered by insurance companies if any under section 80CCC. If you are paying off an education loan, you can claim a deduction under section 80 E on that and home loan interest repayment warrants deduction under section 24. Repayment of principal amount on home loan can be claimed under section 80C also. Hence, you can divide your 1.5 lakhs among ELSS and other mentioned products as per your age and risk profile and along with tax planning try to earn inflation hedged returns in the future.”
Key takeaways
– Familiarise yourself with the glossary of tax terms. Make use of the internet to enlighten yourself about the taxation system in India.
– A DIY approach may not be the best if you are not well-versed with the tax maze. Seeking professional help will save you from unnecessary hassles and even litigation later on.
– ELSS is pure equity investment, EPF, and PPF are pure debt products whereas NPS is considered as a hybrid product. So the combination of these is a good strategy for tax planning.
This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.
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