5 Best Tax Saving Options & Plans for Financial Year 2015-16

Life insurance benefits you & your family in many ways. One of the major advantages is your family’s protection & along with this protection there are other key factors that are crucial to plan your savings, one of them is tax planning. Life insurance plays a major role as a tax saving investment option by providing various plans like term plan, retirement, savings & investment plans which could be viable tax saving options.
Tax-saving is an important part of financial planning. An intelligent tax-planning strategy can serve the dual objective of helping individuals meet their financial goals and save tax in the process.
Here is a list of some of the best tax saving options, plans and schemes for 2015 that can help individuals maximize tax benefits:
1. Life insurance
Life insurance plays an important role in the individual’s financial portfolio offering security to the individual’s family in case of an eventuality. This makes it the breadwinner’s primary responsibility to take life insurance at the earliest for the family’s security.
Life insurance, be it traditional (endowment) or market-linked (ULIP), offers tax benefits to policyholders on the premiums paid.
There are various life insurance plans like:
Term plans
Endowment plans
ULIPs or unit-linked plans
Money back plans
Regardless of its nature, life insurance plans offer tax benefits to policyholders.
Premiums paid towards life insurance are covered under Section 80C of the Income Tax Act up to a maximum of Rs 1.5 lakhs. Proceeds on death / maturity are tax-free under Section 10(D).If policyis surrendered/terminated within five years, deductions claimed are added to income and taxed accordingly
2. Pension plans
Pension Plans is another form of life insurance. They serve a different end-objective from other Tax Saving Plans like term plans and endowment plans – which are called protection plans. While protection plans are geared to financially secure the individual’s family on his death, pension plans aim at providing for the individual and his family if he lives on.
Contributions towards pensiona re covered under Section 80CCC(sub-section under Section 80C) of the Income Tax Act. The aggregate limit of deduction under all the sub-sections of Section 80C cannot exceed Rs 1.5 lakhs.
On maturity 1/3rd of the accumulated pension amount is tax free with the balance 2/3rd treated as income and taxed at the marginal tax rate. The amount is tax free upon death of beneficiary.
3. Health insurance or Mediclaim
Health insurance or Mediclaim as it is more popularly known, covers expenses incurred from an accident/hospitalization. Mediclaim also covers pre and post-hospitalization expenses, subject to the sum assured
Health insurance offers tax benefits under Section 80D. Insurance premium upto Rs 20,000 for senior citizens and Rs 15,000 for others is eligible for tax benefit. If the policyholder pays Rs 15,000 as premium on his own policy and Rs 20,000 for his parent, a senior citizen, he can claim tax benefit of Rs 35,000 (Rs 15,000+20,000). Maturity value is tax free for sum received under critical illness policies
4. NPS
The NPS or the New Pension Scheme is regulated by the Pension Funds Regulatory and Development Authority – PFRDA. Any citizen of India over the 18 – 60 years age bracket can participate in it. It is extremely cost effective since fund management charges are low. The fund managers manage the money in three separate accounts having distinct asset profiles viz. Equity (E), Corporate bonds (C) and G Government securities (G). Investors can choose to manage their portfolio actively (active choice) or passively (auto choice).
Contributions made to the NPS are covered under Section 80CCD of the Income Tax Act. The aggregate limit of deduction under this section along with Sections 80C, 80CCC cannot exceed Rs 1.5 lakhs.
Given the range of options, NPS is particularly useful for individuals, with varying risk appetites, looking to set aside money towards retirement.
5. Tax-saving mutual funds
Investments in tax-saving mutual funds, also known as equity-linked savings scheme (ELSS), qualify for tax benefits. Tax-saving mutual funds invest in stock markets, among other assets, and are more suited for investors with medium to high risk appetite. Investments are locked in for three years.
Investments towards tax-saving mutual funds are covered under Section 80C of the Income Tax Act up to a maximum of Rs 1.5 lakhs. Proceeds on death / maturity are tax-free under Section 10(D).

Save Tax & defeat the Tax Monster even at the 11th hour!!

Every year, the month of March springs a wakeup call on many of us. Suddenly, we are rushing at breakneck speed, going through financial papers, researching investment instruments, frantically calling the accountant—the deadline to file income tax returns is once again too close for comfort.

There are many reasons why we put off filing our tax returns each year—work, family pressure, and even sheer laziness. We are all wired to procrastinate; blame it on human nature. The point is this: Should we at all be procrastinating about something as crucial as our tax planning ?

Last-minute tax savings: Why it is a problem

Higher financial burden – Last-minute tax savers often have to scrimp during the last few months of the financial year because a bulk of their income is now directed into tax-saving instruments. The problem is compounded by the fact that the largest chunk of income tax is deducted during the final quarter of the financial year—i.e. from January to March.

Greater opportunity for error – Rushing is never a good idea, especially when your financial well-being is at stake. In the hurry to make good on the potential to save tax , you could make poor financial decisions and invest in unsuitable products. For example, a 25-year-old confirmed bachelor with no dependents has little need for life insurance, but he might buy a policy at the last minute in an attempt to save tax.

Dangers of mis-selling – When attempting tax savings at the 11th hour, many people consult agents and blindly take their advice. You should never take an agent’s sales pitch at face value because (a) there is the obvious danger of mis-selling by an unscrupulous agent and (b) even an honest agent may not be sufficiently aware of your financial condition. It is necessary to do your own research, which is not possible at the last minute.

Processing takes time – Note that buying a tax saving investment is not like buying groceries; there are procedures and it takes time. Furthermore, there may be unexpected delays for various reasons. Postpone your  tax planning until too late and you run the danger of missing your tax filing deadline.

Tax planning: Why you should start early

Make good investments – You should ideally give yourself time to research tax-saving products so that you are certain of getting a good deal. Starting early also ensures that you benefit from the potentially higher rate of returns than your savings bank account would offer you.

Spread out the burden – If you start planning early, you can spread out the cost of making smart investments. Smart planning ensures that you do not have to adopt austerity measures as January comes around in a bid to do save as much tax as possible.

Look at the bigger picture – The longer you procrastinate, the greater the possibility that you will be looking at tax savings through blinkers: Your main goal will then be to save taxes in that particular year rather than on which tax-saving investment instruments benefit you over the long term. This really is the most important factor in favour of starting early, as it enables you to plan for your financial future in a better and more holistic way.

Source : http://lifeinsurance.bajajallianz.com/tax-insights/save-tax-defeat-the-tax-monster-even-at-the-11th-hour/

New-age ULIPs facilitate more efficient tax planning

India is one of the highest saving nations amongst the emerging economies. The Gross Domestic Saving constitutes savings of public, private corporate and household sectors with the household sector having a dominant position over other institutional sectors. It is thus imperative that the government makes efforts to boost savings by giving tax deductions. Though there are multiple modes for saving tax, life insurance is one of the most effective tax- planning instruments. Upon investing in Life Insurance products, one can get a tax deduction on the premiums paid under Section 80 C of the income tax act, 1956 (within an overall limit of Rs. 1.50 lacs per year).Also, the maturity proceeds of a Life Insurance policy are fully exempt if the premium paid on such policy did not exceed 10% of the sum assured in any of the year.

Amongst all insurance plans, new age Unit Linked Insurance Plans (ULIPs)are a category of goal-based financial solutions that offer dual benefits of protection and Investment offering the advantage of Tax Saving Plans to the customer. A Unit linked Insurance Plan is linked to the markets and offers the flexibility to invest the units in equity or debt funds depending upon the customer’s risk appetite. The investment risk is borne by the policy holder. In this respect, a new age ULIP acts somewhat like a mutual fund with added benefit of life cover and it offers more efficient tax saving by charging much lesser than mutual funds.

ULIPs now have charges capped and offer better returns

In the past, ULIPs suffered from certain limitations like high charges, sale keeping in mind a short term horizon, and lack of active involvement by the customer. In 2010, the IRDA issued new guidelines for ULIPs in order to improve the returns for investors by reducing charges and to ensure that the new product is sold and bought as a long-term protection and savings tool. We have gone a step ahead by launching an online ULIP called Click2Invest which charges for only mortality and fund management making it more cost effective than a mutual fund.

Efficient tax saving using low charge ULIPs

ULIPs offer comprehensive tax benefits. The premium paid up to Rs 100,000 in a year is eligible for tax benefit under section 80C. The maturity benefit for policies with insurance cover with 10 times of the premium or more is tax free under section 10(10D). Moreover, the returns under various types of funds including debt funds are also tax free. Partial withdrawals made at various points in time are also tax free.

The above tax benefits along with lower charges offer a win-win situation for the customer.

Conclusion

Tax planning should not be done in isolation and one must align this activity with the larger investment needs in a well planned and systematic manner to gain maximum benefits. The habit of financial planning should be cultivated right from the early stages of career. Ideally this exercise should be done at the start of every financial year where one should make an assessment of allocation of available funds to ULIP- long-term tax-saving instruments.