Tax planning is a legal way of reducing your tax liabilities in a year. It will help you to utilise the tax exemptions, deductions, and benefits in the best possible way for minimising your tax burden. However, it should be done in a legal manner.
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Tax Planning Strategies
- Use up your Rs 1.5 lakh limit under Section 80C
- Contribute to the National Pension System
- Pay Health Insurance Premiums
- Get a deduction on your rent
- Get a deduction on the interest on your home loan
- Keep some money in your savings account
- Contribute to charity
Tax planning is the activity undertaken by a taxpayer who could be an individual, a business or an organisation to reduce the total tax liability by optimally utilising all the allowances, deductions, rebates, concessions and exclusions available well within the legal framework. Simply put, tax planning is the art of managing your income and taxes in an efficient manner so that you pay the least amount of tax on your total income.
However, one of the biggest problems in India while doing tax planning is that most of the taxpayers tend to restrict tax planning to just tax saving investments, but in reality tax planning is a much broader concept.
Tax planning is an important aspect of financial planning and a process which cannot be carried out as a one-time activity. As a taxpayer you should make use of all the tax exemptions, deductions and the benefits available to you to help you minimize your total tax liability and enhance your financial position. Efficient tax planning can help you achieve your financial goals if you explore all the possible tax saving options available to you and make the most of it.
However, one of the biggest problems in India while doing tax planning is that most of the taxpayers tend to restrict tax planning to just tax saving investments, but in reality tax planning is a much broader concept.
Tax planning is an important aspect of financial planning and a process which cannot be carried out as a one-time activity. As a taxpayer you should make use of all the tax exemptions, deductions and the benefits available to you to help you minimize your total tax liability and enhance your financial position. Efficient tax planning can help you achieve your financial goals if you explore all the possible tax saving options available to you and make the most of it.
In India, a person can legitimately save his income taxes by investing his money in the popular tax savings options.
1.One of the options is Section 80C. One can invest and claim Rs. 1.5 lakhs in the options available like PPF, NPS, EPF, Life insurance premium, tax-saving mutual funds (ELSS), children’s tuition fees and housing loan principal repaid among others.
2.You can claim deduction up to Rs. 2 lakh for the interest component paid by you on the home loan, if any. Just claim this under section 24 of the Income from house property head.
3.You can avail a benefit of Rs. 25,000 for the health insurance premium paid for yourself, your spouse and your dependent children under section 80D. In addition to it, you can also insure your parent’s health and claim an additional benefit of Rs. 25,000 under the same section 80D. This deduction can be higher if your parents are senior citizens. Similarly, there are many tax savings options available under different sections of the Income Tax Act.
1.One of the options is Section 80C. One can invest and claim Rs. 1.5 lakhs in the options available like PPF, NPS, EPF, Life insurance premium, tax-saving mutual funds (ELSS), children’s tuition fees and housing loan principal repaid among others.
2.You can claim deduction up to Rs. 2 lakh for the interest component paid by you on the home loan, if any. Just claim this under section 24 of the Income from house property head.
3.You can avail a benefit of Rs. 25,000 for the health insurance premium paid for yourself, your spouse and your dependent children under section 80D. In addition to it, you can also insure your parent’s health and claim an additional benefit of Rs. 25,000 under the same section 80D. This deduction can be higher if your parents are senior citizens. Similarly, there are many tax savings options available under different sections of the Income Tax Act.
If you have not made any tax-saving investments yet and are looking for a safe and easy bet for saving tax then a tax-saving fixed deposit could be an option.
Tax-saving FD is one of the tax saving instruments where one can invest to save tax under section 80C of the Income Tax Act. One can invest in this FD easily by visiting a bank, filling the form and giving a cheque. In fact, if you can place the FD in the same bank branch on which you are drawing the cheque then the transfer of funds can happen quickly and the investment can be done within a few hours.
As the transfer of funds would be between accounts in the same bank branch, it can be done within say, 20 minutes (depending on bank staff's efficiency) and you could walk out with your FD receipt within half an hour. Of course, this investment can be done online also provided you have access to net banking and are comfortable using it.
Tax saving FD being a debt investment is safer than equity-based tax saving avenues such as ELSS schemes. Returns on a tax saving FD are also guaranteed contractually by the lender (the bank or post office) and fixed for the term of the FD.
Among debt investments offering the section 80C tax benefit, this is one with the smallest lock in period of 5 years and offering a periodic interest pay out option. Five-year NSCs also offer Section 80C tax benefit but are cumulative instruments and do not offer periodic interest pay outs. Consequently, among debt investments tax saving FDs are a comparatively more liquid, safe and easy option.
Tax-saving FD is one of the tax saving instruments where one can invest to save tax under section 80C of the Income Tax Act. One can invest in this FD easily by visiting a bank, filling the form and giving a cheque. In fact, if you can place the FD in the same bank branch on which you are drawing the cheque then the transfer of funds can happen quickly and the investment can be done within a few hours.
As the transfer of funds would be between accounts in the same bank branch, it can be done within say, 20 minutes (depending on bank staff's efficiency) and you could walk out with your FD receipt within half an hour. Of course, this investment can be done online also provided you have access to net banking and are comfortable using it.
Tax saving FD being a debt investment is safer than equity-based tax saving avenues such as ELSS schemes. Returns on a tax saving FD are also guaranteed contractually by the lender (the bank or post office) and fixed for the term of the FD.
Among debt investments offering the section 80C tax benefit, this is one with the smallest lock in period of 5 years and offering a periodic interest pay out option. Five-year NSCs also offer Section 80C tax benefit but are cumulative instruments and do not offer periodic interest pay outs. Consequently, among debt investments tax saving FDs are a comparatively more liquid, safe and easy option.
