Tax Saving - Tax Deduction

Tax Saving Tips: Keep More of Your Hard Earned Money in Your Pocket

During Tax Season, everyone's biggest concern is how to keep from paying in more taxes. Often it's too late during those lag months to do anything different, but there are a few things you can do now to plan for next year.

1. Put a Tax Savings Plan in Place, and Use It.

Discuss your tax issues with your Tax Preparer and put a plan in effect now for this year's income to save money on next year's taxes. By creating a Tax Plan & Budget now, you will have an active lead on what you should be doing during each quarter, not only to make your business more profitable, but also to save those extra dollars you pay to IRS and the Government.

2. Use investment, tax deferment, and alternate income sources to cut taxable income.

Invest in your future, for a time when you won't be making as much money, so you'll have a lower tax bracket. Put money in savings for your children's education and defer your tax costs until you have fewer children at home to support. IF your children literally do work in your business, put them on the payroll, let them pay their own expenses for summer camp and education, and reduce your tax burden. They paychecks are deductible, summer camp and education is not.

3. Adjust billing, collection, and payables for maximum tax advantage.

Yes you can defer billing a client until after the New Year, to avoid taxing that income in the current year. It may or may not be advisable, depending on the client. Prepaying for long term services can increase your deductions. Providing you really do use the services, this is an excellent method of reducing taxes.

4. Document your expenses, keep good records, and write a daily activity diary.

Document everything, no matter how trivial; keep good records of your activities and expenses related to business. When your receipts are confirmed by a diary entry, IRS can't argue with your deductions.

5. Be a Good Steward of your Money.

When your bills are due, pay them. IRS understands the value of punctuality. They charge penalties for being late. Penalties increase your Tax Debt. So, it's always best to pay your Tax bills when they are due or before.

Donations, time, money, and objects are deductible on some level, keep good records to determine your legal donation limits and prevent overpayment of taxes.

6. Work from Home

Home based businesses get the cream of Tax Deductions. These deductions are legitimate if you have proof. Your daily diary will provide active proof of your business operations, duties, and deductible expenses. If in doubt write it down. Ask your tax preparer to be certain.

7. Incorporate Your Business

Corporations pay less for the same Taxable income. In general, this statement is true. However, before going to the expense of incorporating your business, ask your Tax Preparer to advise you. It may not save enough money to pay for the legalities of incorporating.

There are many ways to save money on your Tax Saving Plans. These are just a few of the more popular methods. If you'd like more information, contact your Tax Preparer.

Source: http://blogs.rediff.com/taxsavingplans/2016/07/16/ritikashah11998-20/

Tax Saving

Tax Saving Plan for Employed People

Employed people have less scope for tax savings as compared to self-employed people.

If you are currently employed, the income and benefits from and related to your employment are taxed and you cannot claim any deductions against employment income except that are specifically allowed by the system.

Here are some taxes planning techniques which can lead to save taxes:

• Arrange to get nontaxable benefits: There are some employment benefits which are not taxable like contributions to a registered pension plan, contributions to a group sickness or accident insurance plan, contributions to a private health services plan, all or portion of the cost of free or subsidized school services for your children.

• Ask to have your source withholdings reduced wherever possible: In any situation where you expect to receive a refund after filing your return, you should review the form which you file with your employer and seek to have source with holdings reduced. If you get a refund, that means the has been holding your money and not paying you interest on it for many months. It is better you can send a cheque to at filing time so that you can use that funds in the meantime.

• Pay interest owing on loan from employer by January 30 of the following year:

If you receive a low interest -free loan from your employer, you are considered to have received a benefit from employment. The benefit is set at the CRA's current prescribed rate of interest minus any interest you actually pay during the year or within 30 days after the end of the year. This will provide you with a cash flow advantage.

• Consider employee's profit sharing plans for cash flow purposes: there is no source withholding on the amounts paid by the plan to you. Careful timing of the employers' contributions and the Tax Saving Plans disbursements can give you better cash flow than would a straight bonus payment.

• Transfer retiring allowances to an RRSP: If you transfer the entire retiring allowance into an RRSP, the legal fees will never become deductible. When you take payments out of the RRSP, they are no longer considered a retiring allowance.

• Claim the employment tax credit to help cover your work related expenses: Employees can claim a 15% tax credit to help cover their work related expenses.

• Employed trades people can claim the deduction for the cost of new tools: If you are an employed trade person and you must use your own tools on the job, you can deduct the portion of the cost of new tools.

• You can claim rebate for GST/HST paid on expenses deductible from your employment income.

Source: http://blogs.rediff.com/taxsavingplans/2016/07/14/ritikashah11998-19/

Tax Saving Plans - A Must for Everyone

What does one mean by income tax savings? What are the different tax saving plans etc. These are some of the terms which one needs to be aware of. To make sure that your hard earned money stays with you, it is important for you carry out an extensive research when it comes to tax savings. The income that you earn annually is subject to the Income Tax laws governing that country. The tax rates are not fixed and are based on the income that you earn throughout the year. But, one can save a lot on tax money, only if he or she plans it the proper way and takes wise steps at different stages of life.

So if the question how to save tax is mind boggling you, well we'll help you out with the best solutions. To extract maximum tax benefits, you need to invest your earnings in various tax savings schemes. These tax saving investments come with loads of features and benefits. With the help of tax deduction, a break granted by the government, some part of your income is excluded when it comes to calculating government tax.

Apart from this, you can also invest in long term Best Tax Saving Plan investments like pension savings plan for a life after retirement or a life cover to secure your family's future. Which means that tax saving plans do not just reduce your taxable income but also help you and your family have a secured future.

Now let's come to saving tax through life insurance policies. Life insurance policies are one of the best ways to save tax as under the Income Tax Act 1961 (Act), when investing in a life insurance plan, the premiums that you pay when calculating taxable income are waived off. So the assured sum and the profit which you receive are all exempted from tax. What's more? By investing in a Life Insurance Scheme, you get double the tax benefits. Now isn't that what you call a win-win situation.

Moreover, apart from this investing in a health insurance scheme can also generate great tax benefits. Along with money saved from tax, you secure yourself from any uncertainties in life like illness, accident etc. So to make sure that your money stays in your hand and you can give your family a good life, go ahead and invest in the best schemes as far as your taxes are concerned. It is a time tested that only the best investment plans guarantee a safe and sound return.

The author has a deep knowledge on the tax instruments and has been associated tax saving investments for over a decade now. And has a deep knowledge on the options to choose from.

Source: http://blogs.rediff.com/taxsavingplans/2016/07/06/ritikashah11998-18/

6 Tips That Can Help You Save A Lot More Tax

Planning your money right can help you save a lot that you otherwise end up paying as tax. If you take the right measures, you can reduce your taxable income, hence saving a lot more than usual. If you recently joined the tax-paying brigade or aren’t sure about where to look for tax savings, don’t worry! We have answers to all your questions related to Tax Saving Plan.

Here are six tips that can help you save a lot of tax:

1.       Save tax on rent payment

If you’re living in rented accommodation, your employer is supposed to give you some part of this money as House Rent Allowance (HRA). If you stay with your parents, you can avail tax benefits under section 80GG by paying the monthly rent to them. You can claim the least of the following:

·         25 per cent of the total income or

·         2,000 per month or

·         Excess of rent paid over 10 per cent of the total income

The HRA tax deduction limit has been increased from Rs. 24,000 to Rs. 60,000 in this Union Budget. However, this deduction isn’t available if you have a residential property in your name or in your spouse’s or child’s name.

2.       Pay less tax if you’ve an ailing dependant at home

Under section 80 DDB, you can get some tax benefits if you have an ill dependant at home. You get to avail a deduction of up to Rs. 80,000 for the medical treatment of a super senior citizen who’s at least 80 years old. If the person is between 60 and 80 years, it will be Rs. 60,000 and if the person is below 40 years, the exemption is Rs. 40,000. This deduction, however, is available for some specific illnesses and you can claim them only if the ailing person hasn’t filed for any such deduction separately.

3.       Invest in ELSS funds

Investing in ELSS funds is the most prudent way to reduce your taxable income. Because of their great potential and high liquidity, they are one of the most preferred investment options. If you’ve already fulfilled your KYC requirements, you’re eligible to invest online. Otherwise, you need to go through the KYC screening process first.

4.       Invest in ULIPs

ULIPs are something you can opt for as you get to avail the benefits of an insurance policy as well as an investment. Some of the ULIPs even cost less than direct Mutual Funds, and unlike ELSS funds, you can switch your corpus from equity to debt and vice versa. Since all insurance plans enjoy a tax exemption under Section 10 (10d), there’s no tax implication on the gains made from switching. Don’t forget to check the cost of the ULIP before investing.

5.       Restructure your salary

If you bear some expenses just because you’re working in a particular company, you can always ask your employer to restructure your pay. You can claim to avail various perks and allowances. All you need to do is give a proof of these expenses to avail a tax-free allowance. Some such allowances that fall under this category are:

·         Conveyance

·         Medical treatment

·         Telephone and mobile

·         Books and magazines

·         Uniform

Since these allowances are given according to your grade, you can’t ask for all of them. Your employer has the right to decide your eligibility for these.

6.       Leave travel allowance and medical expenses

Most employers give part of your salary as medical expenses. If you start collecting medical bills and produce them when needed, this allowance can become tax-free for you. The upper limit, however, for these expenses is Rs. 15,000 in a financial year. If you have any dependents, you can produce their medical bills as well. Similarly, depending on the HR policies of your company, you can also avail leave travel allowance that can be claimed if you go on a vacation. You need to produce the actual bills and receipts here as well.

[ Source : https://blog.bankbazaar.com/6-tips-that-can-help-you-save-a-lot-more-tax/ ]

Tax Saving Plans

Many in India Still Think That Insurance is an Avoidable Expenditure

The insurance sector has only 2% penetration in Indian market largely to the fact that Indians see it as an avoidable expenditure. Many in India don’t see the urgency to get insurance policies. A majority of Indians still reside in rural areas or lesser developed towns where awareness is restricted. Large percentage of illiteracy still prevails in major parts of India. In order to penetrate deeper in the Indian market the insurers need to spread awareness among the ‘centers of influence’ i.e. the ‘village sarpanch’ in case of villages. Centers of influence can be different for different people. People mostly get influenced by people on whom they have trust. For some they can be their family and friends as well. Many people in India still don’t bother to buy essential insurance policies like health insurance. Reasons can be many but one of the most common reasons is that people don’t find the urgency to buy an Life insurance policy. India is still a developing country and there is large inequality of income spread. A large number of people somehow manage to pay bills and any money left after paying bills is mostly spent on leisure or savings in banks (mostly). Having an insurance policy like term insurance or health insurance is still thought of as a luxury. It is seen in case of motor insurance that people in order to avoid challahs or fine get only third party insurance as it is mandatory. They don’t take comprehensive motor insurance policies that cover their own vehicle as well. The whole ideology is to save or avoid paying premium even if they are exposed to a higher financial risk. Many people mostly in second and third tier cities where traffic checking is less strict than a city like Delhi don’t even bother to get third party or liability insurance done for their vehicles. The defaulters are obliged to be penalized heavily. Still, in order to avoid paying premium they don’t get it done. And there are many others who still don’t trust that their claim would be paid by the insurance company when the need arises. Maybe they have seen or witnessed cases where claims have been rejected by companies. There can be faulty or fraudulent claims by the policyholder.

Although the scenario has been changing post liberalization with the advent of many private players in the Indian Insurance market space there are still paths left to be unblocked. Some of the world’s largest and most reputed insurance companies partnered with Indian corporate houses have ventured in India. They have brought international expertise and know how in the country. With aggressive advertising and transparent disclosures the insurance industry is expanding. It is still in a very nascent stage. There have been major alterations and modifications in handling the various intermediaries in the insurance sector to make insurance selling fairer and more convenient. The easier accessibility of the internet and rage to buy everything online among the masses has seen the birth and exponential rise of online insurance policies being offered by various insurers.

A lot of awareness and trust is still to be spread among the Indian masses to encourage them to be adequately insured. Insurance is an extremely importance risk management tool. Not being insured or being underinsured is a major risk. Being adequately insured gives a person a sense of self sufficiency and confidence to face adversities. This message has to be scribbled in the Indian psyche. Insurance is not a mere tax saving scheme rather it is the most trusted confidant that would come to aide in the most desperate times. With more education and fair trade practices one can hope to see a fair insurance market penetration in the country in times to come.

Source: http://tax-saving-plans.tumblr.com/post/144543645260/many-in-india-still-think-that-insurance-is-an

Tax-Saving Options that Save Tax and Grow Your Wealth

If you are reading this, you are likely to be someone whose income exceeds the threshold of Rs 2.5 lakhs for paying taxes. There are some legitimate ways of saving taxes and the good thing is that most of them also help you grow your wealth. These options usually have a lock in period and vary in the nature and amount of return they provide. You must also remember that each of these alternatives also serve specific purposes and tax saving is not the purpose but an ancillary benefit of that.

What is pre-determined and what is optional. EPF, Home Loan repayment and Tuition Fees are pre-determined. Add them up and see how much of your 1.5 lakh limit is utilized.

ELSS Tax Saving Mutual Funds

ELSS or Equity Linked Saving Schemes are a kind of equity-linked mutual funds.  As they invest in equity or stocks, ELSS funds have the ability to deliver superior returns - 14-16% over the long term. That’s a full 6-8% above inflation. This return is not guaranteed though but historical evidence suggests that these returns are achievable over the long term.

Public Provident Fund

PPF is a good option if you are looking for an option with certain returns.

Your PPF investments earn interest at a rate announced every year – currently 8.7%. PPF return is therefore mostly at par with inflation. However, it is tax-free and you can do a lump sum or small regular investments.

The duration of a PPF account is 15 years which is extendable by 5 years at a time. You cannot withdraw money from your PPF account except under certain conditions but not before 5 years.

You can invest in PPF through a bank or Post Office. Ability to invest online is limited.

Life Insurance Premium

This was almost the default Tax Saving Plans option for years, however, over the last few years; most informed investors have learnt the perils of choosing this option

There are 2 kinds of Life Insurance Policies:

Pure risk also called term life which ensures a risk to the life of the insured

Risk+ investment: which pay you back money over time

While pure risk life insurance is something everyone with a dependent must have, it’s not an investment. Life insurance is an expense- something you pay to ensure that your dependents are not left stranded should something unfortunate happens to you.

National Pension Scheme

National Pension Scheme is a lot like investing in mutual funds with its Safe, moderate and Risky options. The returns are not guaranteed.

You cannot withdraw until 60 and the corpus amount must necessarily be invested in an Annuity. The withdrawals are also taxable.

Pension Funds

Pension funds are designed to provide you with an income stream post retirement. They come in two flavors: Deferred Annuity and Immediate Annuity.

For deferred annuity plan, you invest annually until your retirement. Once you reach your retirement, you have can withdraw up to 60% of your accumulated corpus and have to re-invest the remaining in an annuity fund which will give you a monthly pension.

When it comes to immediate annuity plans, you invest a bulk amount one-time and get monthly pension from the next month itself. You would typically use these to invest your retirement corpus.

Source: http://tax-saving-plans.tumblr.com/post/144496559495/tax-saving-options-that-save-tax-and-grow-your

Before Buying Insurance Policy to Save Income Tax

Premiums paid towards these insurance plans buy you protection. What’s more – you can also get tax benefits on the maturity amount/returns from insurance plans. For employees Jan-Feb is season of submitting income tax proof.  Many people buy insurance policy, in a hurry, to save tax and submit the proof to employer. Buying an insurance policy is a long time commitment, similar to marriage. So It is advisable to understand all aspects of claiming tax benefit in buying insurance policy.  Let us examine these aspects in detail as per current income tax laws.

What is tax benefit available for insurance policy?

Any amount paid to an insurer to buy or to keep a life insurance policy in force can be claimed as a deduction from gross total income by the policy holder. So premium paid for a life insurance policy can be deducted from gross total income before arriving at taxable income subject to certain conditions.

Life insurance plans are eligible for Best Tax Saving Plan deduction under Sec. 80C. Deduction benefit up to Rs 1.5 lakh under Section 80C.  Section 80C relates to deduction allowed under investments in instruments like PPF, insurance and pension policies.

Pension plans are eligible for a tax deduction under Sec. 80CCC. Deduction benefit up to Rs 1.5 lakh under Section 80CCC.

Health insurance plans/riders are eligible for tax deduction under Sec. 80D. You can get a tax deduction of maximum Rs 25,000 on the health insurance premium for self and family. If you are a senior citizen, you can claim tax deduction on the premium of up to Rs 30,000.

Combined Limit of deduction under Sec 80C & 80CCC & 80 CCD is Rs 1, 50,000.

The proceeds or withdrawals of our life insurance policies are exempt under Sec 10(10D), subject to norms prescribed in that section.

Who can get the tax benefit on premium paid for a life insurance policy?

On whose name should the life insurance policy be to claim the tax benefit?

An individual can only claim tax benefit under Section 80C of the Income tax Act, 1961, on life insurance policy(s) bought in the name of self, spouse or children. You can buy a life insurance policy for any number of your children irrespective of whether they are minor, major, married, unmarried or adopted. A policy taken in the name of any other person won’t be eligible for any tax benefits. So life insurance premium paid by you for your parents (father / mother / both) Brother, Sisters or your in-laws is not eligible for deduction under section 80C.

Source: http://tax-saving-plans.tumblr.com/post/144290926275/before-buying-insurance-policy-to-save-income-tax

Tax Saving Plans

How to save taxes as a salaried individual?

Salaried individuals are one class of people that have to pay maximum taxes in our country. This often leads to disappointment among salaried individuals. Of course, who would be happy knowing that half of the hard earned income has been deducted in the form of taxes? But with the right tax planning strategies, it is possible to save your income from tax liabilities. Here are few ways that will help you save taxes as a salaried individual.

Restructure your salary: We often spend money from our own account on expenses which are actually company’s or employer’s requirement. For example, if you wear a uniform for your job’s sake or talk to a client with your own mobile phone. Such expenses should be certainly covered by your employer. Ask for the restructuring of your salary, if you are the one who is paying for the following expenses.

Some allowances which save tax

Conveyance

Newspaper, Books and Magazine

Medical Treatment

Uniform

Telephone and Mobile

Office Entertainment

Make use of section 80C: Under section 80C, you can avail a maximum tax deduction of Rs 1 lakh by investing in any of the following options

ELSS(Equity linked saving scheme)

Public provident fund

Life insurance policy

Fixed deposits

National saving certificates.

Save tax on rent payment: You may be working outside your city and do not have a company accommodation. Expenses on rent payment should be deductible from your taxable income. House rent allowances include 25 % of the total income. However, the deduction will not be allowed if you own a residential house in that location.

Reimburse travel and medical expenses: Personal expenses such as travel and medical are also tax deductible. Although you will be required to provide proper receipts and bills in order to claim the deduction. Deduction, under this category, is limited up to Rs 15,000.

Tax saving from home loans: As a salaried individual, you will always consider a home loan option before buying a house. In such case, do not forget to take into account tax deductions which are applicable to both principal payments as well as interest payment. Section 80C offers deduction up to Rs 1 Lakh on principal component of your home loan.

Apart from considering all the above Tax Saving Plans options, consult a professional tax planner to avoid any last minute hassle. It is important to start your tax planning well before 31st March and to file your returns before the 31st of July each year.

Source: http://tax-saving-plans.tumblr.com/post/143984905105/how-to-save-taxes-as-a-salaried-individual

Best Tax Saving Plan

All About Deduction Under Section 80C And Tax Planning

Background for Section 80C of the Income Tax Act (India) / what are eligible investments for Section 80C:

Section 80C replaced the existing Section 88 with more or less the same investment mix available in Section 88.  The new section 80C has become effective w.e.f. 1st April, 2006.  Even the section 80CCC on pension scheme contributions was merged with the above Section 80C.  However, this new section has allowed a major change in the method of providing the tax benefit.  Section 80C of the Income Tax Act allows certain investments and expenditure to be tax-exempt.  One must plan investments well and spread it out across the various instruments specified under this section to avail maximum tax benefit. Unlike Section 88, there are no sub-limits and is irrespective of how much you earn and under which tax bracket you fall.

The total limit under this section is Rs 1.50 lakh from financial year 2014-15 / Assessment Year 2015-16. Before FY 2014-15 the limit was Rs. 1 Lakh. Under this heading many small savings schemes like NSC, PPF and other pension plans. Payment of life insurance premiums and investment in specified government infrastructure bonds are also eligible for deduction under Section 80C

Most of the Income Tax payees try to save tax by saving under Section 80C of the Income Tax Act.  However, it is important to know the Section in to so that one can make best use of the options available for exemption under income tax Act.   One important point to note here is that one can not only save tax by undertaking the specified investments, but some expenditure which you normally incur can also give you the tax exemptions.

Besides these investments, the payments towards the principal amount of your home loan are also eligible for an income deduction. Education expense of children is increasing by the day. Under this section, there is provision that makes payments towards the education fees for children eligible for an income deduction

Sec 80C of the Income Tax Act is the section that deals with these tax breaks. It states that qualifying investments, up to a maximum of Rs. 1.50 Lakh , are deductible from your income. This means that your income gets reduced by this investment amount (up to Rs. 1.50 Lakh), and you end up paying no tax on it at all!

This benefit is available to everyone, irrespective of their income levels. Thus, if you are in the highest tax bracket of 30%, and you invest the full Rs. 1.50 Lakh, you save tax of Rs. 45,000. Isn’t this great? So, let’s understand the qualifying investments first.

Qualifying Investments

Provident Fund (PF) & Voluntary Provident Fund (VPF): PF is automatically deducted from your salary. Both you and your employer contribute to it. While employer’s contribution is exempt from tax, your contribution (i.e., employee’s contribution) is counted towards section 80C investments. You also have the option to contribute additional amounts through voluntary contributions (VPF). Current rate of interest is 8.5% per annum (p.a.) and is tax-free.

Public Provident Fund (PPF): Among all the assured returns small saving schemes, Public Provident Fund (PPF) is one of the best. Current rate of interest is 8.70% tax-free (Compounded Yearly) and the normal maturity period is 15 years. Minimum amount of contribution is Rs 500 and maximum is Rs 1, 50,000. A point worth noting is that interest rate is assured but not fixed.

Life Insurance Premiums: Any amount that you pay towards life insurance premium for yourself, your spouse or your children can also be included in Section 80C deduction. Please note that life insurance premium paid by you for your parents (father / mother / both) or your in-laws is not eligible for deduction under section 80C. If you are paying premium for more than one insurance policy, all the premiums can be included. It is not necessary to have the insurance policy from

Home Loan Principal Repayment: The Equated Monthly Installment (EMI) that you pay every month to repay your home loan consists of two components – Principal and Interest. The principal component of the EMI qualifies for deduction under Sec 80C. Even the interest component can save you significant income tax – but that would be under Section 24 of the Income Tax Act. Please read “Income Tax (IT) Benefits of a Home Loan / Housing Loan / Mortgage”, which presents a full analysis of how you can save income tax through a home loan.

Stamp Duty and Registration Charges for a home: The amount you pay as stamp duty when you buy a house, and the amount you pay for the registration of the documents of the house can be claimed as deduction under section 80C in the year of purchase of the house.

Infrastructure Bonds: These are also popularly called Infra Bonds. These are issued by infrastructure companies, and not the government. The amount that you invest in these bonds can also be included in Sec 80C deductions.

Pension Funds – Section 80CCC: This section – Sec 80CCC – stipulates that an investment in pension funds is eligible for deduction from your income. Section 80CCC investment limit is clubbed with the limit of Section 80C – it maeans that the total deduction available for 80CCC and 80C is Rs. 1.50 Lakh. This also means that your investment in pension funds up to Rs. 1.50 Lakh can be claimed as deduction u/s 80CCC. However, as mentioned earlier, the total deduction u/s 80C and 80CCC cannot exceed Rs. 1.50 Lakh.

Senior Citizen Savings Scheme 2004 (SCSS): A recent addition to section 80C list, Senior Citizen Savings Scheme (SCSS) is the most lucrative scheme among all the small savings schemes but is meant only for senior citizens. Current rate of interest is 9.20% per annum payable quarterly. Please note that the interest is payable quarterly instead of compounded quarterly. Thus, unclaimed interest on these deposits won’t earn any further interest. Interest income is chargeable to Best Tax Saving Plan . The account may be opened by an individual,

Who has attained age of 60 years or above on the date of opening of the account?

Who has attained the age 55 years or more but less than 60 years and has retired under a Voluntary Retirement Scheme or a Special Voluntary Retirement Scheme on the date of opening of the account within three months from the date of retirement.

No age limit for the retired personnel of Defense services provided they fulfill other specified conditions.

Source: http://bestsavingsplan.tumblr.com/post/143625123529/all-about-deduction-under-section-80c-and-tax

SIX TASKS TO DO IN THE NEW FINANCIAL YEAR

Tax Saving Plans

Tax Saving Plans

Quick tips to save tax through insurance

Come March and all of us will be busy in calculating our tax liabilities. In fact, most organisations start asking for proofs of investment under tax exempted instruments by January itself.

Thus, this is the time when one can review his or her tax liabilities and take necessary actions. As you may already be aware that this year the income tax exemption limit towards life insurance has increased from Rs 1 lakh to Rs 1.50 lakh. It is a significant jump of flat 50 per cent. This exemption can be claimed under section 80C of the Income Tax Act.

But, are you going to take advantage of this move? Of course, you should. Unfortunately, there are millions of people who had been investing in insurance as per the previous limit of Rs 1 lakh. But it is still not late and you can take a corrective action.

What about pension funds?

If you are thinking of investing in a long-term pension fund, then you can claim tax benefit under section 80CCD of the Income Tax Act. The deduction under this section can be availed up to Rs 1 lakh.

Although, the pension which you receive after the policy tenure is applicable to income tax. The percentage of tax depends upon the amount of your gross taxable income.

Section 80 CCE of the Act specifies that the total limit of deduction under the abovementioned sections – 80C and 80CCD comes to Rs 1.50 lakh.

Deduction under health insurance

After life insurance, you can further claim income tax deduction with respect to premium paid towards health insurance. There is a provision of deduction up to Rs 15,000 towards health insurance.

This is further added up by Rs 20,000 towards health insurance premium paid for parents above 60 years of age. If parents are below 60 years, then the tax deduction would be Rs 15,000. Tax payers, who fall in the category of senior citizens, can also claim the deduction of Rs 20,000.

Are you worried about low returns?

A large number of people appreciate life insurance plans because of their dual benefit of risk coverage and tax exemption. But there is always a concern on the low rate of returns offered by these plans. It is observed that most plans offer annual returns in the range of 5-8 per cent.

This rate of return is even lower than average rate of inflation. Thus, investing in insurance is not preferred by people who wish high return on investment. They may invest some amount to cover risk and get some exemption but they always aspire to invest in other instruments such as equities and real estate. Is there a solution?

Well, we cannot say anything about real estate, but yes, you can always invest in equities and insurance altogether. Unit Linked Insurance Plan (ULIP) are the potential solution.

These plans are also recognised for Tax Saving Plans exemption under section 80C and there is an added benefit of investing in equity markets. You can always the allocation of your premium in traditional debt instruments and equities to balance risks. For instance, you can specify that 40 per cent of your premium should be invested in equities and the rest in government securities. This helps is enhancing the average rate of returns on you investment.

For instance, you invest Rs 1 lakh in ULIPs, specifying that Rs 60,000 should be invested in government securities and the rest in equity markets. Now, in a year if your plan generate 9 per cent on government securities and 15 per cent from equity markets, your total return will be as: Rs 5,400 from securities and Rs 6,000 from equities. This will bring you a return of Rs 11,400 in total – 11.4 per cent returns per annum.

In the long run, you are able to enjoy the power of compounding. ULIPs have a lock-in period of 3-5 years, and you are somehow bound to think long term. If you tend to withdraw the premium before this period, the deductions are as high as 30 per cent.

From these perspectives, all the insurance plans have such conditions in place. That means, if you withdraw premium amount before a certain period, which is generally 3-5 years, then the penalties fall in the range of 30 per cent. Thus, it is better to invest in insurance from a long term perspectives, and it really works, providing you a sizeable corpus.

YOUR FAMILY CAN HELP YOU SAVE TAXES – HERE’S HOW

This is time of the year when we are scurrying to put together our investment proofs and tax savings documents. You family can help you save taxes too, let’s find out how.

Health insurance – The pressures of modern living have put our health at greater risk. While most employees have a medical insurance cover from their employer, it usually only covers hospitalization. Buying a medical insurance cover for your spouse, children and parents to cover common ailments has tax benefits too. For you and your spouse & children a deduction of Rs 25,000 and for parents an additional Rs 30,000 can be claimed under section 80D. You can also avail tax benefits under section 80D if you purchase a term insurance plan with a critical illness benefit. Do remember to pay the annual premium at this time, so you can claim the entire amount as deduction in your tax return.  

Medical check-ups – Included in the amount for deduction under section 80D is health check-ups for your family.  If you do not want to go for medical insurance, getting a preventive health check-up done for your family will help you save taxes. Several hospitals and clinics offer preventive health check-up packages. A maximum of Rs 5,000 can be claimed for you, your spouse’s and your children’s health check-up. Rs 5,000 can also be claimed for health check-up of your parents. These amounts however are within the overall limit of section 80D. You can get both medical insurance as well as preventive health checkup but the total deduction cannot exceed the amounts specified above.

Life insurance premium – Buying a life cover for you & your family can save you taxes. The premium paid is allowed as a deduction under section 80C. The policy must be in the taxpayer’s or spouse’s or any child’s name (the child may be dependent/independent, male/female, minor/major, or married/unmarried). A maximum of Rs 1,50,000 can be claimed under section 80C. If you intend you purchase a life insurance policy do check the premium commitments, terms and the cover in detail. You’ll have to pay the premium over a number of years and do not make the decision in haste to save taxes.

Rent on accommodation – If you are living with your parents, you can pay them rent and save tax on HRA. Enter in to a rent agreement with your parents and pay them the monthly rent. Your parents will include this rental income in their tax return. If the house is jointly owned they can split the income in the ratio of their ownership. If they are in a lower tax bracket or do not have taxable income, as a family you’ll end up saving tax. For parents who are more than 60 years old the exemption limit is Rs 3,00,000 and for parents older than 80 years, the exemption limit is Rs 5,00,000. So if they this rental income keeps them under the exemption limit, you’ll have greater tax benefits The rental income earned by them can be further invested in Tax Saving Plans free instruments such as ELSS or senior citizen’s savings scheme or fixed deposits.

Tuition Fees – Any sum paid as tuition fees (excluding payment towards development fees/donation/similar nature payment) to any university/college/educational institution in India for full time education of any two of your children, is deductible under section 80C. This is an expense that you have already incurred and you can claim it in your return and save tax. A maximum of Rs 1,50,000 can be claimed under section 80C.

Your family can help you save tax on your hard earned money.

Save a Month’s Salary in Taxes

It is the last quarter of the financial year, and hence the ideal time for tax planning if you haven’t done it already.

At this juncture, it is important to keep in mind that your annual package is directly proportionate to your tax liability, meaning, as your income increases, your tax liability increases as well.

The annual tax liability of an individual is almost equal to one month’s salary. However, even after the basic deductions, such as EPF and HRA, at the employer’s end, you end up sharing a substantial percentage of your salary with the taxman.

For instance, an individual with a take-home salary of Rs.50,000 a month accrues an annual tax liability of Rs.46500 which is almost equal to the take-home amount.

Depending on your tax slab, you can save up to Rs.45,000 in income tax by claiming deductions under Section 80C and up to Rs.4,500  by the means of claiming deductions under Section 80D.

Investing in the following instruments can help you claim deductions with accordance to Section 80C and Section 80D of the income-tax act and eventually, legally save tax:

Term Plans

Term plans require a higher level of commitment and offer modest returns; this is why term plans are not considered as good means of saving on taxes.

A term insurance plan requires you to pay premiums for a definite period of time and provides risk coverage.

If the insured person expires during the policy term, the beneficiary is entitled to the insured sum, but, if the person survives the policy cover period, then survival benefits are not given to the beneficiary. Hence, this product does not interest buyers.

However, from a tax-saving perspective, all insurance plans are equal before the law. Therefore, irrespective of the kind of life insurance plan, you get equal tax benefits.

As life insurance falls under EEE (i.e. Exemp-Exempt-Exemp) category, both, the premium paid as well the sum assured is exempt from income tax.

For instance, if a non-smoker starts at an age of 25, then paying nearly Rs.15,000 per annum can get him a sum assured of nearly Rs.3 crores.

The amount of Rs. 15000 that you pay towards premiums will be treated as a deduction from your taxable income, while the sum assured will be a totally tax-free income.

Health Insurance

You can claim for tax deductions against the money spent for medical expenses for self or a dependent family member.

An individual can claim maximum deduction of Rs. 30,000 u/s 80D. This deduction includes Rs.15,000 for himself and family and the rest Rs.15,000 for parents.

However, if the parents are senior citizens the deduction allowable for them is Rs. 20000. This benefit is available over and above the deductions of Rs. 1.5 lacs under Section 80C.

For example, if an individual with a package of Rs.10 to 15 lacs per annum invests about Rs.7,000 per annum towards a health insurance plan, then he can get a sum assured of Rs.10 lacs. This premium of Rs.7,000 can be treated as a deduction from the taxable income.

There are 4 kinds of health insurance plans that you can choose from. This includes medical insurance plan, hospitalization plan, super top-up plan and critical illness plan.

Child Plans

It is not necessary to start planning for your child after you have one. You can start saving and investing as soon as you get married.

As we are already aware, the cost of education is growing much faster than inflation. Fee for higher education is not what it used to be about 15 to 20 years ago.

Pursuing a master’s degree from a leading management school now a days costs you around 14 to 15 lacs or may be higher.

Hence, to avoid financial crises in future, it is imperative for parents to start saving for our children’s secure future as early as possible.

Along with securing your child’s career and future, these plans save you a substantial amount of tax as well. They not only allow you to claim deductions in the year of investment but also ensure a tax-free return to your child in future.

For example, if an individual buys a child plan as soon as his child is born, and pays approximately Rs.72,000 per annum for 20 years, then his child would get a sum assured of Rs.30,00,000 lacs post maturity.

However, both the premium and the sum assured will be tax-free only if the annual premium is less than 10 % of the total sum assured.

I the annual premiums exceed 10 % of the sum assured, then the premium only up to that limit will be exempt and the entire sum assure will be taxable under the head ‘income from other sources’.

Retirement Plans

It is wise to start planning for your retirement as soon as you start earning; because later you start the more you pay towards premiums, which can make it difficult for you to set aside a sufficient corpus for the golden years of your life.

The income tax act states that any amount paid to keep a retirement policy in force is eligible to be claimed as a deduction under section 80C.

Therefore, the entire amount paid by you, inclusive of service tax and any other charges if collected by the insurer, can be deducted from your taxable income.

Amount that can comfortably fulfill of your current requirements will not be sufficient meet your requirements when you turn 65; reason being, the rising cost of living and the shooting inflation rate.

Hence, it is imperative for you to save for your calm future.

NOTE: Pension plans offered by insurance companies give you similar Tax Saving Plans benefits as retirement schemes by mutual fund companies.

You can claim a deduction of up to Rs.1 lac from the amount of premium paid towards a pension plan under Section 80CCC of the Income Tax Act. While, one-third of the maturity amount withdrawn will also be tax free.

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.