Factors Determining the Scope and the Limit of a Tax Saving Plan

There has been a drastic rise in food prices. Be it vegetables, spices, condiments or the common day-to-day edibles, the price hike is sensational. The scenario not only affects your purse string but also curtails your focus on saving. At the end of the day, your thrust has to be on minimizing expense and maximizing saving. Inflation does tend to come in your way. Under such an eventuality, you should look forward to cashing in your chips with a Best Tax Saving Plan. It may be tad more helpful than before in streaming your expenses.

For minimizing expenses

There is an important psychological logistic to consider. If you have the ready money, you are more than likely to spend it. The proposition gives rise to unnecessary wastage. It is the psychological angle that drives you on to shell out money from your pocket. Under such an eventuality, it pays to gain by controlling the strings of expenditure. There are different means whereby you can lock in your money in the schemes of investment. The tax saving plan is one of the avenues to choose.

You are the winner

It all boils down to counting on the points of gain. You have lots to gain and little to lose by embarking upon investment ventures that facilitate the prospect of tax saving. There are legal ways to save tax, and every single tax payer has to broach upon the useful plans on tax saving. The leading insurance facilitators have plenty in store with respect to tax saving. The tax ability of your income is one of the factors of determination. According to the limit imposed, you can opt for a suitable tax saving plan.

The calculation strictures

A fiscal planner considers a large number of factors for calculating a plan that makes for tax-saving. First, it is your gross income that merits attention. Second, a certain part of your gross earning contributes to the provident and other funds of the benefit. So, deduction happens to be an important area of calculation. Third, the taxable limit comes into play. The amount you end up paying as income tax is another focus of the calculation. Then, you may also have other options for income earning. For instance, you can earn by renting your property, and putting the same out on sale.

Determining the best policy

the scope of the Best Tax Saving Plan calculation also includes the short- and long-term gains that you are likely to make from the other investment avenues. You have reasons to gain by fixing your money in the schemes of deposits. Similarly, you have cuts of profits to make by locking your capital in stocks, bonds and shares. All these factors go hand in hand to decide the look and nature of your saving plan. You may inherit property, and that might be another source of gain. But then, every gain comes at a price. You will have taxes to pay. Similar is true if you receive gifts that exceed a certain price bracket. Lottery winnings also culminate in tax payment. With the help of a saving plan, you can partly manage to mitigate the tax payment.

[Source: http://onlinelifeinsurance1.weebly.com/blog/factors-determining-the-scope-and-the-limit-of-a-tax-saving-plan]

What Affects Your Decision to Buy Insurance

Risk aversion is the primary reason for people to avail of insurance. At the same time, there are some factors which discourage people for ignoring it.

A large number of people are optimist. They do not think that something can go wrong in their lives. Insurance does not make any sense to them. Are you among those people? Or have you come across such people?

Well, no wonder. There are several such examples around us. Especially people who are young take life as it comes. But there are millions of incidents which exemplify the critical role of insurance in one’s life. Accidents can happen with anyone at any point of time. Problems can come calling without giving any advance notice. Yes, that is the reality of life and you cannot shy away from it.

Still, people tend to find reasons to not buy insurance or buy very less amount of coverage. Here are some of those major factors which influence people’s decisions.

Income and wealth

There are different dimensions of income and wealth vis-a-vis insurance. They all are interlinked. A person looks for insurance if he has created assets through income and wealth.

The net worth of assets directly influences the amount of coverage. At the same time, a wealthy person tends to ignore insurance coverage for some assets.

It is generally observed that the degree of risk aversion gradually declines with the increase in income and wealth. Similarly, if a person has a limited number of assets, he could be more protective and averse to risk.

This is a human tendency, well-supported by research studies.

Premium loading

Since tax saving Plans insurance is a service provided by profit-making companies in both private and public sectors, it involves certain costs towards operations and management. These are generally termed as administrative costs which the insurer incurs towards the buying transaction and subsequent deployment of funds. Many times, a higher amount of premium loading de-motivates a person.

In the industry, there is a concept of zero-loading. However, rarely any company follows this concept. Given the high costs of infrastructure and resources, insurers have no alternative but to charge customers.

However, at times, these charges are unreasonably high and exploitative.

On a positive note, the Insurance Regulatory and Development Authority of India (IRDAI) is increasingly focusing on e-Governance and this is likely to bring down the transaction and administrative costs by several times. Also, the Authority is setting limits to premium loading, and it is not that insurers can charge whatever they want.

Lock-in period

The lock-in period is another major deterrent to buying insurance. This is especially true with life insurance. Under section 80C of the Income Tax Act, one can claim exemption of up to Rs 1 lakh for buying life insurance policies. This limit was recently increased under the Union Budget 2013-14 by Rs 50,000. Therefore, one can invest up to Rs 1, 50,000 under life insurance and claim income tax deductions.

It is a huge benefit and people can save a large part of their income going in the form of tax. Just imagine, if you were in the tax bracket of 30 per cent and a deduction of an additional Rs 50,000 brings it down to the bracket of 20 per cent. This single step can have a lasting impact on your tax returns and you get much more in the form of savings and investments.

[Source: http://blog.hdfclife.com/factors-that-impact-your-decision-to-buy-insurance]

5 points to note about tax saving

The need for you to be actively engaged in your personal tax planning is of particular importance. By structuring a suitable mix of investments for your portfolio, you can pay less tax and ensure that you have the right investments to help you achieve your goals.

1) Have a holistic approach to tax planning

Good tax management can go a long way toward enhancing your return. But the decision needs to be made in conjunction with your overall portfolio and not in an ad-hoc fashion.

Most individuals rarely think about tax planning from an investment point of view. Hence one finds that they do not approach an investment with a perspective of whether or not it fits in with their overall portfolio. The approach is often just grabbing up investments that will give them the tax break, irrespective of whether or not it will help them reach their determined financial goals or fit into an overall investment strategy.

Tax planning investments are no different from conventional investments. Hence, it is imperative to obtain an in-depth understanding of all investment avenues available which offer tax benefits and choose suitable ones that will help tax saving plans and achieve goals.

2) Don’t leave tax planning for the fag end of the financial year

Along a similar vein, one should not consider tax saving as once-in-a-year ritual to be repeated at the end of every financial year. Most procrastinate and wait until the last minute. The result is a portfolio full of insurance schemes and investment decisions made in a tizzy.

Most investors in a crazy dash to meet their Section 80C requirement will opt for unit linked insurance plans, or ULIPs, and endowment plans and often end up with products that do not suit their need.

Life insurance should never be bought with the intention of saving tax. Tax saving is just one of the benefits that come along with it. The main benefit is the provision of finances in the case of death of the policy holder.

Taxes can be saved with other tax-saving instruments such as equity linked saving schemes, tax-saving bonds and government bonds, post-office savings schemes and Public Provident Fund.

3) PPF and NSC are not similar

Another mistake individuals tend to make is to think of the Public Provident Fund, or PPF, and National Savings Certificate, or NSC, along the same lines. Granted, both offer tax saving benefits under Section 80C, both are backed by the government, and both offer assured returns, but they are very different in their structure.

On the point of liquidity, NSC scores simply because of the lower lock-in period. The NSC VIII Issue is for 5 years and the NSC IX Issue is for 10 years. PPF is much longer at 15 years and can even be extended by a block of 5 years on maturity.

On the return front, the rate for PPF is fixed by the Reserve Bank of India and is reset every financial year. It currently stands at 8.7% per annum. In the case of NSC, the rate of return is locked at the time of investment and during the tenure of the investment it remains insulated from any changes in rates. Currently the rate is 8.5% (NSC VIII) and 8.8% (NSC IX) per annum.

The return in both cases is compounded and handed over on maturity. In the case of PPF, it is compounded annually, but half-yearly where NSC is concerned. But the interest earned in the case of NSC is taxed, unlike PPF where it is completely exempt from tax.

4) Tax saving is more than fixed-return instruments

Individuals tend to look at the Senior Citizen Savings Scheme, or SCSS, 5-year deposits, NSC and PPF as the best tax saving plan investment avenues. But you can also invest in an equity linked savings scheme, or ELSS. These are diversified equity mutual funds that offer a tax benefit under Section 80C. They have the lowest lock-in period of just three years.

As on January 5, 2014, the ELSS category average delivered an annualised return of 27.55%. Do note, that was just the category average. Individual funds could have delivered even more. For instance, the chart topper was Reliance Tax Saver (Growth) with an annualised return of 40%.

Having said that, keep in mind that these are equity funds which means, the return is far from guaranteed. So pick a good fund that has shown consistent performance and stick with it over the long haul. Don’t be in a tearing hurry to sell your fund units on completion of three years. Exit from the fund when the market is rallying so you walk away with a profit. If this means hanging on for a few more years, do so.

5) Take into account the entire package

Tax saving is more than just investments and goes beyond Section 80C.

If you have made a donation to a charity that offers a tax deduction, avail of it. If you are paying premium on a medical insurance policy for yourself and dependents, be sure to claim the deduction.

Also, if you are servicing a home loan or an education loan, you are eligible for income tax deductions. Under Section 80C, you can even show the expenses of your child’s education to avail of a deduction.

When deciding how much to invest to max your deduction under Section 80C, take into account children’s tuition fees, principal repayment on home loan, contribution to employees provident fund, or EPF, and any life insurance premium you are paying.

[Source: http://www.morningstar.in/posts/30076/5-points-to-note-about-tax-saving.aspx]

Life Insurance is one of the best tax saving tools

Tax planning is not only a basic duty of everyone towards the progress of nation but it is also important for our own financial planning. It helps you reduce your income tax liability and also ensure a better future due to compulsory savings in highly safe government approved schemes.

How to calculate tax?

Taxable income is calculated on the basis of income from salary, house property, business and profession, capital gains and income from other sources. Calculate tax payable on the gross taxable income for the whole financial year (i.e., from 1st April to 31st March) using a simple tax rate table. Then minimize your tax payable amount through sensible tax planning by comparing and choosing the best tax savings plan based on your age, social liabilities, tax slabs and personal preferences. You should choose your investment options in such a way, that the post tax yield is the highest possible keeping in mind the basic parameters of safety and liquidity.

While drawing up a tax savings plan, it is crucial to remember that investing in any of the financial product just to save taxes may actually turn out to be harmful in the long run. There are many tax saving avenues available, good financial planning involves maintaining a right mix of investments in debt and equity related instruments, which not only save tax but also benefit you financially.

Under Section 80C of the Income-Tax Act, 1961, an individual can invest up to Rs 1.5 lakh, which includes investments in Public Provident Fund (PPF), life insurance premiums, national savings certificates of India Post, employees’ contribution to Provident Fund, tax-saving mutual funds, five-year bank and post office fixed deposits.

While we see there are various tools for creating your  tax saving plans one good option is insurance policy. Life insurance plans are effective way to save taxes when doing your tax planning. You can walk into your bank, enquire about tax-saving investments, and step out with a life insurance policy. You may even buy a policy from your investment advisor who always impresses you by counting the infinite benefits of buying retirement policy to save taxes.

Thus, individuals can get a tax benefit for the purpose of their financial planning through investments in insurance products under the Rs 1.5 lakh deduction limit under Section 80C of the Income Tax Act. The major way in which the benefits are obtained is through the insurance route as insurance companies have the policies that offer this benefit over a period of time.

But, as a buyer you need to be careful while buying an insurance policy. Lots of people end up buying a policy that won't offer any tax benefits. Even the money received by their nominee in case of death will be taxable if the policy does not cover the buyer for 10 times the annual premium. Sometimes agents as well as aggregator sites sell insurance policies that are not eligible for tax savings plan. Clarify with your insurance agents for tax benefits. Insurance agents are bombarding buyers with attractive benefit illustrations without educating them on the tax implications.

[Source:https://taxsavingplansinindia.wordpress.com/2015/09/18/life-insurance-is-one-of-the-best-tax-saving-tools/]

Factors Determining the Scope and the Limit of a Tax Saving Plan

There has been a drastic rise in food prices. Be it vegetables, spices, condiments or the common day-to-day edibles, the price hike is sensational. The scenario not only affects your purse string but also curtails your focus on saving. At the end of the day, your thrust has to be on minimizing expense and maximizing saving. Inflation does tend to come in your way. Under such an eventuality, you should look forward to cashing in your chips with a tax saving plans. It may be tad more helpful than before in streaming your expenses.

For minimizing expenses

There is an important psychological logistic to consider. If you have the ready money, you are more than likely to spend it. The proposition gives rise to unnecessary wastage. It is the psychological angle that drives you on to shell out money from your pocket. Under such an eventuality, it pays to gain by controlling the strings of expenditure. There are different means whereby you can lock in your money in the schemes of investment. The tax saving plan is one of the avenues to choose. 

You are the winner

It all boils down to counting on the points of gain. You have lots to gain and little to lose by embarking upon investment ventures that facilitate the prospect of tax saving. There are legal ways to save tax, and every single tax payer has to broach upon the useful plans on tax saving. The leading insurance facilitators have plenty in store with respect to tax saving. The tax ability of your income is one of the factors of determination. According to the limit imposed, you can opt for a suitable tax saving plans.

The calculation strictures

A fiscal planner considers a large number of factors for calculating a plan that makes for tax-saving. First, it is your gross income that merits attention. Second, a certain part of your gross earning contributes to the provident and other funds of the benefit. So, deduction happens to be an important area of calculation. Third, the taxable limit comes into play. The amount you end up paying as income tax is another focus of the calculation. Then, you may also have other options for income earning. For instance, you can earn by renting your property, and putting the same out on sale.

Determining the best policy

The scope of the tax saving plan calculation also includes the short- and long-term gains that you are likely to make from the other investment avenues. You have reasons to gain by fixing your money in the schemes of deposits. Similarly, you have cuts of profits to make by locking your capital in stocks, bonds and shares. All these factors go hand in hand to decide the look and nature of your saving plan. You may inherit property, and that might be another source of gain. But then, every gain comes at a price. You will have taxes to pay. Similar is true if you receive gifts that exceed a certain price bracket. Lottery winnings also culminate in tax payment. With the help of a saving plan, you can partly manage to mitigate the tax payment. 

[Source: http://onlinelifeinsurance1.weebly.com/blog/factors-determining-the-scope-and-the-limit-of-a-tax-saving-plan]

Tax Saving Plans - Tax Free Bonds 2015-16: Features & Benefits

Tax Saving Plans - Tax Free Bonds 2015-16: Features & Benefits from Mihir Shah

Visit to know more on Tax Saving Plans

Five tax things that will help you ensure financial freedom

Financial freedom liberates an individual from the constant monetary worries and tensions that are part of everyday life but getting there requires a lot of work and effort. There are several things that can ensure that you can have financial freedom but the area of taxation requires a lot of attention as this can prove to be a road block in the effort. Too much or too little attention to the tax aspect can effectively eat away at the efforts to ensure financial freedom that you as an investor have been working towards. However a little bit of work on the tax angle can pay handsome dividends. Here are some ways in which this can be done so that your financial freedom is achieved. 

Invest according to your goals and not just to save tax  

One of the most important points when it comes to taxation is that there are several tax deductions that are available for individual when they invest in specific instruments. One of the most popular routes is the benefit of a deduction under Section 80C. Here investment in specified instruments like Employees Provident Fund, Public Provident Fund, National Savings Certificates, Senior Citizens Savings Scheme, Equity Linked Savings Scheme, Life Insurance premium etc is eligible for a deduction upto Rs 1.5 lakh a year. This is a golden opportunity for an individual to plan their goals and then ensure that the amounts are invested that would achieve the goals and at the same time save tax. Often this angle of combining goals and tax saving plans investment is missed out. People do not invest according to their goals which leads to a position where they struggle to complete the tax requirements and at the same time their goals remain unmet. This is something that needs to be avoided so that one investment can yield multiple benefits.

Boost for retirement planning  

The biggest financial goal for every individual is to plan for their retirement and this requires a huge sum of money. It often takes decades to plan and invest for retirement and the challenge on this front is big. A little bit of attention to the tax aspect can ensure that there is little to worry about on this front too. There are instruments like the Public Provident Fund and the Employees Provident Fund which provide double benefits. On one hand the amount invested gives a deduction from the taxable income to the individual under Section 80C but even greater is the benefit that is received on the payout. The amount earned on these schemes as interest is tax free so this reduces a huge burden when this is earned or when this is received. This can help in ensuring that the goal of retirement planning is tackled and freedom from this tension is achieved for an individual. Medical expenses taken care of

Powering education

 Most parents are worried about the education of their children due to the high cost involved. This is an area that provides for an improved career and earnings prospect in life. There is however a large cost that can come for achieving as this has spiralled in the last few years this but some small tax steps can ease the situation for the individual. An education loan for the purpose of higher education will ensure that the financial aspect of the process is met but at the same time it will also give a best tax saving plan

benefit to the individual when the loan is repaid. The interest that is paid on the loan will be allowed as a deduction for 8 years. This will also remove worries about meeting the hig education costs and making it affordable. 

Wealth creation

Equity is the best asset class that can help in the process of wealth creation and this benefit can be multiplied by also ensuring that the tax benefits are taken with it. Equity oriented investments like shares and equity oriented mutual funds have double benefits as the dividends are tax free and at the same time long term capital gains is charged at zero per cent rate which also makes the gains tax free. This can be used for the necessary asset allocation and the tax benefit will ensure that the goal of wealth creation takes place without taxes eating into the effort leading to another area that provides financial freedom.

[Source: http://www.moneycontrol.com/news/tax/five-tax-things-that-will-help-you-ensure-financial-freedom_2395101.html]