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.
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