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TAX Planning
Planning is the key to successfully and legally reducing your tax liability. We go beyond tax compliance and proactively recommend tax-saving strategies to maximize your after-tax income.
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Our consultants make it a priority to enhance their mastery of the current tax law, complex tax code, and new tax regulations by attending frequent tax seminars. Businesses and individuals pay the lowest amount of taxes allowable by law because we continually look for ways to minimize your taxes throughout the year, not just at the end of the year.
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With the growing complexity and diversity of available options for tax planning purposes, it is important that we critically examine and bring to you the new generation of options available for investors in the present investment market.
There are various provisions in the Income Tax Act to save tax. The saving schemes one should opt for. It would depend on the person's income and the tax bracket he or she is in.
In other words, investing in an equity-linked savings scheme may result in greater savings for one person, while investing in a PPF may result in better tax savings for another person. The tax-saving strategy should be finalized on an individual basis after discussion. From a tax-saving point of view, the suitability of a scheme depends on which income tax slab one is in.
The Best Tax-Saving Investments for Deductions:
Tax Deductions Through Investments
According to Section 80C of the Income Tax Act, you can reduce your taxable income by Rs. 1 lakh by investing in certain investments. These investments can be from any one source or a combination of sources, such as public provident funds, national savings certificates, tax-saving mutual funds, pension plans, fixed deposits, and life insurance policies. Since the returns on investment, risk factors, term of deposit, and entry load or commissions vary for each type of investment, here is some information about each type to help you select the best according to your needs. They are arranged as the best investments for young salaried taxpayers in India, according to the ones that I prefer the most:
1. Equity-Linked Savings Scheme (ELSS): High Risk. Also known as tax-saving mutual funds, an ELSS has the lowest lock-in period of 3 years. As the money invested in an ELSS is invested by mutual funds in diversified stocks in the stock market, there is no guaranteed return. Dividends and profits from the redemption of units after the term period are tax-free. If you buy directly from the mutual fund instead of a broker or distributor, then you pay zero entry load; otherwise, entry load is around two percent. Remember, in the long run, the stock markets always see a rise.
2. Bank or Post Office Fixed Deposits:
Low Risk. Only investments made in scheduled banks for a period of five years or more can be counted as a bank fixed deposit. The interest on such fixed deposits is around 8–9 percent. Income from interest is taxable. Forms are available at bank and post office counters.
3. National Savings Certificate:
Low Risk. It comes in denominations of Rs. 100, 500, 1000, 5000, and 10,000. The forms are available at any post office. The maturity period is six years, while the interest rate is 8 percent compounded half-yearly. If you pay in cash, you will be given the National Savings Certificate then and there. If you pay by check, you will have to wait a week before you can collect the NSC certificate from the post office. Interest is taxable.
4. Life Insurance Policy:
If you are looking for life insurance coverage along with an investment, then you should choose one such policy that offers a guaranteed return on maturity. If you have a huge loan to pay off and a family, it is better to go for cheap traditional term insurance where you don’t get the premium back but have huge insurance coverage in case of any untoward incident. Premiums can vary and may be paid monthly, quarterly, annually, or in a lump sum, depending on the policy you choose. The term of the policy can vary from five years to twenty years or more. Money received from an insurance company as the proceeds of an insurance policy (by way of an insurance claim or by maturity) is generally exempt from tax.
5. Government Infrastructure Bonds:
Low Risk. The main problem with these tax-saving bonds is that they are open and available only for a fixed period. As many bonds open around February, they miss the January 31 deadline for submitting investment proof, which is prevalent in most offices. The major institutions that offer these bonds are ICICI, IDBI, and the Rural Electrification Corporation. Term periods can range from five to seven years, and interest may vary from 6 to 9 percent per year. Forms for tax-saving bonds are available at local distributors that sit on the pavement outside major banks. Companies like ICICI have not come out with tax-saving infrastructure bonds for a long time now.
6. Public Provident Fund:
Low Risk. The investment limit is Rs. 500 to Rs. 70,000 per year, in multiples of Rs. 5. The main problem with this scheme is that you have to remember to invest at least Rs. 500 annually for 15 years, or your account will become defunct. The interest rate is 8 percent per year compounded, while the lock-in time period is 15 years. Another negative point is that as interest rates are on the downside and are routinely changed by the government, they may see a further fall. As interest for the financial year is calculated on the lowest balance after March 5th, make sure you invest before that date. PPF accounts may also be made in the name of your spouse or kids for tax benefits. You can open a Public Provident Fund Account at main post offices, branches of the State Bank of India, and some nationalized banks.
7. Pension Plans: High Risk:
Life insurance companies such as LIC, Tata AIG Life, Aviva, ICICI Prudential, and Bharti Axa Life offer such pension plans. On maturity, the investor receives one-third of the amount, while the remaining 2/3 goes into an annuity that provides regular income in the form of a pension. Only premiums up to Rs. 10,000 per year are eligible for deductions from total income. Like Linked Insurance Plans (ULIPs), a substantial amount of the money invested in pension plans goes into paying ‘fund charges’ and commissions. Plus, the annuity received by the insured investor is taxable. Terms can extend from 10 years upward. Though some returns may be guaranteed, a large part depends on the debt market, the share market, and inflation.
8. Unit-Linked Insurance Plan:
A Unit Link Insurance Policy (ULIP) is one in which the customer is provided with life insurance coverage and the premium paid is invested in either debt or equity products or a combination of the two. In other words, it enables the buyer to secure some protection for his family in the event of his untimely death and, at the same time, provides him with an opportunity to earn a return on the premium paid. In the event of the insured person’s untimely death, his nominees would normally receive an amount that is higher than the sum assured or the value of the units (investments). To put it simply, ULIP attempts to fulfill the investment needs of an investor with the protection and insurance needs of an insurance seeker. It saves the investor or insurance seeker the hassles of managing and tracking a portfolio or products. ULIPs have been selling like proverbial ’hot cakes in the recent past, and they are likely to continue to outsell their plain vanilla counterparts going ahead.
9. Senior Citizens Saving Scheme:
Only people over the age of 60 and retired personnel over 55 years old are allowed to invest in this scheme. This scheme is available at all public-sector banks in the country. Investments have to be made in multiples of Rs. 1000 to a maximum of Rs. 15 lakhs for a period of five years. The deposit made gets an interest rate of 9 percent per year from the date of deposit, which is computed quarterly. Interest is taxable and is deducted at source.
