When you are facing short of funds then Income tax saving is best option to invest. Well in advance you must plan tax investments to avoid problems. Here are three simple ways that can help you to save income tax if you have made saving in past. Now you don’t have money to invest we are providing here how to go about it.
Withdraw and reinvest from PPF
PPF is an excellent tool for long term. If you are investing in PPF account then you have an option to overcome cash shortage. As you know there is tax deduction under section 80C of Income Tax Act up to Rs 1.5 lakh per year in public provident fund. From seventh year onwards, you are eligible to withdraw money from your PPF account.
Also, you can withdraw 50% lower balance available at end of fourth year past withdrawal or 50% of balance at end of earlier year. You can invest money in some other instrument or PPF by your choice that gets deduction under section 80C of Income Tax Act.
Withdraw and reinvest from mutual funds
Currently everyone will invest in equity mutual funds and tax saving mutual funds. These tax saving mutual funds offer tax breaks under section 80C of Income Tax Act up to Rs. 1.5 lakh per year. These Tax saving funds come with lock in period of three years. If you want to sell them you have to invest in tax saving mutual fund for more than three years.
After 3 years lock in period, you can withdraw amount from mutual fund. You can reinvest that money in tax saving scheme and that treated as fresh investment. Also, you will get tax break on this new investment with lock in of three years. If you hold equity mutual fund for more than one year also, there is no tax on gains. If you have such investment, you can sell it and invest in tax saving mutual funds. This method does not change your asset allocation.
Have a fixed deposit? Do a tax saving bank fixed deposit
Everyone will have bank fixed deposits but these can be broken. Premature withdrawal will lead to low interest than committed at time of making fixed deposit but you still get some money. Now invest in bank tax saving fixed deposits. These deposits come with five year lock in period and get tax deduction under section 80C of Income Tax Act, for an amount up to Rs. 1.5 Lakh.
These actions may sound good and they must see as last minute resort. These roll-over tax saving investments lead to minimum investment and tax saving cannot be sole reason to invest. You must save more and invest more as you earn more. You can acts together if you are facing situation of cash crunch.