After coming back from his vacation, Sidhesh Tulange, a 33 year old Software consultant, logged into his office computer to make the first statement, “Oh No! I forgot to submit this before going to vacation.” The HR department has reminded him for submission of his tax saving proofs and declarations by 31st Dec. “I should not delay this further. Let me close this by today itself”.
Some minutes later, he received a call from a telemarketer. Sidhesh was usually reluctant towards attending marketing calls, but today he spoke to them nicely.
The telemarketer said, “Sir, are you done with your tax saving investments for this year?”
“Not yet”, said Sidhesh.
“That’s great. Our company has launched a very good product specially for people like you (As if the caller had all the history of Sidhesh). This will give you insurance, investments and tax savings too.” Said the telemarketer.
“Sounds Good. What documents would you need from me? (The desperation of Sidhesh is worth noting. He is not even asking any details of the plan, as he is too worried about the proof submission).
“Few basic documents like your (blah-blah-blah) and a cheque of Rs. 50,000.” (The telemarketer didn’t bother to ask how much Sidhesh is willing to invest for the purpose of tax saving).
“No problem. I have all of them with me. Can you send someone to pick-up the same today itself?” Said Sidhesh.
“With pleasure Sir.” The telemarketer was jumping with joy. She could imagine her bonus package getting swollen with deal closed.
Sidhesh handed over the cheque of Rs. 50,000 and signed the documents without having any idea of what he is doing. He got the receipt, submitted it to the HR and thought that the “pain” has gone for once.
Actually, the pain started after that. When he later added his PF deductions, they were adding up to Rs. 48,000. Also, he was paying an EMI of Rs. 30,000 towards his home loan, thereby paying Rs. 3,60,000 p.a. This had a principle component of Rs. 75,000 in it. Thus, his total investment amount for 80C was already Rs. 1,23,000. However, since Rs. 1 Lakh is permissible for deduction u/s 80C, there was no need for him to buy the unknown product from the telemarketer. Thus, he failed to save tax from this investment.
Sidhesh was trying to console himself by thinking that at least he has a life cover now. But then he came to know that he could have got a life risk cover of Rs. 75 lakhs at a premium of Rs. 5,000-6,000 p.a. Whereas he was paying a premium of Rs. 50,000 for a cover of just Rs. 5 Lakhs. Thus, he failed to buy a good life cover from this investment.
His last argument to himself was this amount would save him some money for his retirement. Wherein he came to know that this investment in next 25 years would not accumulate more than Rs. 25 Lakhs for his retirement whereas he could have invested it wisely to accumulate Rs. 80-90 Lakhs for his retirement.
Sidhesh realised that this mistake has happened just because of his lethargic attitude throughout the year and then deciding in haste when it came to tax saving proof submission.
He learnt that:
1. Mis-selling happens because of lack of due diligence from the investors.
2. We are bound to make mistakes when we leave things for the last minute. Thus, plan in advance and execute in time.
3. If you are paying a home loan, get a break-up of principle and interest from the bank, so that you know how much benefit can be claimed u/s 80C and u/s 24(b).
4. Calculate your PF deduction (Employee contribution) and accordingly work out your requirement to save for 80C.
5. Prefer one time investments like ELSS over recurring investments like endowment plans, ULIPs or money-back plans.
6. Buy a term plan for a life cover. Even if you do not need it for saving tax, you need it to secure your dependents in case of an unfortunate event.
7. Seek professional guidance than rely on fly-by-night agents or telecallers.
Mis-sellers are on prowl and you could be the next Sidhesh! Beware!
We look forward to your feedback and comments on the above article. Please feel free to contact us on saurabh@nidhiinvestments.com if you have any questions.
(The views mentioned in the article are personal opinion of the author)
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