Income Tax Planning – India
Most of us lack behind in the Tax planning. We always do it at the end of Feb or Mar, because of which we end up into wrong decisions. Here we will help you to identify Tax saving investments as per your requirement. In India we can save Tax under sec 80cc up to Rs.1, 00,000 and apart from that we can also claim income tax exemption for interest on housing loan up to Rs.1, 50, 000, MediCLAIM up to Rs.20, 000 for dependent senior citizen parents. In India we have many instruments to invest FORTAX saving so therefore we should not invest in which comes first to us.
One should always do a proper and careful Tax planning. One should also look Tax planning as protection planning (Life insurance, MediCLAIM) or as wealth creation (ELSS, FD). First of all you need to find out how much Provident Fund is deducted from your salary. Because that amount will be considered under your One Lakh rupees limit. For ex. if Rs.25,000 yearly has been deducted from your salary then you have to think about only remaining Rs.75, 000.
ELSS Fund or Tax saving Fund = this means the Equity Linked saving scheme. This helps you to indirectly invest in the equity market. But it has three year lock in period. So you should invest amount which you will need after three years only. ELSS provides you the benefit of Tax saving as well as Wealth creation. Some Tax funds also provide you the medical benefits. Ask your agent about all the features of your Tax saving fund. If you feel your agent is only interested in selling products then you can always contact us for your queries.
Life Insurance Plan = It is always said that one should not look at the Life insurance plan as tax saving. We also suggest you the same thing.All life insurance plans gives you the tax benefit so you should always go for plan which is suitable to your life and your financial planning.You need not buy every year new policy. If you think that you have already invested enough in life insurance plan but want to invest again then you should go for ULIP plans. Payout from life insurance policy is tax free.
Fixed Deposit = Mostly people who don’t want to take risk invest in Fixed deposit. Currently there is 5 year fixed deposit which provides you the tax benefit. Currently the maturity amount is tax free. This instrument provides you the benefit of tax saving and guaranteed return.FD is not preferable by financial planner due to less return compare to ELSS and long maturity term. But if still one wants to invest in FD then he should invest spare amount which will not require in near future.
Loans = Currently in India there are two loans Home loans and Education loan have Tax exemption. Many people invest in house so that they can claim exemption. One should understand that under section 80cc only principle repayment can be exempt. Tax deduction on the interest component comes under section 24 and will depend upon whether home is rented or self occupied. You should keep in mind that over a period of time the principle payment increase and the interest payment decrease. We should also analyze whether interest payment is not more than the benefit of tax exemption.Under education loans, the interest that you pay will be tax deductable.
PPF and NSC= People who don’t want to take risk they can invest their small savings in PPF. It gives you guaranteed return but it has lock in period of 15 years. You can withdraw some part after 6 years. One can look at this option as their Pension planning. PPF normally gives you the 7.5% to 8% (subject to change) return but don’t forget that it gives you the benefit of compounding rate. If you have withdrawn your Provident fund while changing a job then you can invest that amount in PPF. It will be saved as Provident fund and you will get the benefit of tax also.NSC stands for National Saving certificate. This one also assures you the guaranteed return. You can also invest into post office.Most of us are not aware of the Volunteer Providend fund. Normally 12.5%of your basic salary is invested into your PF and same contribution is done by the employer. As a concept of VPF you can invest up to 100% of your basic salary in your PF but your employee contribution will remain the same. You just need to inform your employer to invest as a VPF from your salary. You will get the exemption up to 100% of your basic salary if invested in PF or VPF. This is suitable for those who are risk averse and who don’t want to get into the planning