FD for tax deduction high among young professionals

The income tax savings behaviour of over 2,100 professionals across various age groups and cities and finds the common mistakes committed.

By Author   |   Published: 20th Jan 2017   11:02 am
tax deduction
According to the report, an average of 42.3% professionals avail themselves of deductions under Section 80C.

Hyderabad: ArthaYantra in its latest report on tax saving habits of Indians, points out that many are buying ULIPs, moneyback or endowment insurance plans, investing in low yield schemes, lump-sum in PPF over a systematic, higher-yield VPF, not making tax-deduction claims under sections other than 80C, saving excessively to reduce tax payable and ignoring immediate and future cash requirement

The report examines the income tax savings behaviour of over 2,100 professionals across various age groups and cities and finds the common mistakes committed. The final quarter of the financial year is the tax season. This is the period when professionals invest in tax saving instruments to reduce their income taxes. Often professionals invest in instruments that save tax but yield poor returns in the long term, which is why investing in the right scheme becomes important to avail the short term benefits of tax saving as well as good returns on investment in the long term.

Nitin B Vyakaranam, CEO ArthaYantra said, “Tax is one of the most important personal financial decisions. Often, these decisions are taken without help. This could lead to a lot of mistakes and wealth erosion. In fact, most of the mistakes are made between the ages of 21-30.”

The report reveals the common mistakes that professionals commit while planning for their taxes. For example, PPF schemes typically have a longer lock-in period than ELSS schemes and yield lower returns as an investment. Yet, PPF remains the most preferred tax saving scheme for all ages while ELSS subscription is very low for all ages.

According to the report, an average of about 42.3 per cent of professionals avail deductions under Section 80C. The average deductions claimed under Section 80C is about Rs 79,500. In contrast, only 12 per cent of the professionals claimed deductions under sections other the 80C. The average deductions claimed under non-80C sections was about Rs 15,200.

The report examines tax-saving behaviours across various parameters. When looking at the behaviours by age, the study found that younger professionals prefer Fixed Deposits and the preference for Fixed Deposit decreases with age. This could be because the first investment advice that young professionals receive is through their parents. And parents typically advise low risk investments to their wards.

Similarly, the report examined the tax savings of professionals based out of seven cities- Bengaluru, Chennai, Delhi-NCR, Hyderabad, Kolkata, Mumbai and Pune. Professionals based out of six of these cities primarily preferred PPF for deductions under section 80C. Professionals based out of Chennai preferred claiming section 80C deductions through Children’s education fees.

Tax plans are important not just for the immediate term, but for the long term as well. The report covers good practices in tax planning for professionals across age groups. Nitin B Vyakaranam, CEO – ArthaYantra adds, “We believe there is no ‘one size fits all’ in good tax planning. Tax planning is as distinct as a person’s financial life. Some professionals can afford to invest more in risky instruments than others. In this report, we explain what can be a good approach to tax planning and there are insights for professionals of all ages.”