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.

Five Common Insurance Myths

Insurance is only meant for the wage earner of the family: Every family member needs insurance. The need for insurance may differ from person to person but it is important to gauge and analyse this need. It is not just the chief wage-earner’s prerogative to insure himself.

Insurance is mainly for tax saving: Saving tax is just an added advantage of insurance. Governments offer Best Tax Saving Plan benefits on insurance plans so that more and more people feel encouraged to insure themselves. The main objective of insurance is to provide financial protection to you and your family and to build an assured corpus for your future needs.

Benefits of insurance can be reaped only after death: Insurance provides financial protection to you and your family. One of the main objectives of taking insurance is to provide financial support to your family in case you are not around, as in case of term insurance. But that is not the only objective. Insurance helps you to build a corpus for yourself and your dear ones. It provides you with comfortable retired life and even takes care of your needs at various life stages.

Group insurance provided by my employer is adequate: Your group insurance might be adequate but what if you change the job? Once you change the job your group insurance will cease and you will be left with no cover till your new employer gets you covered. So it is always advisable to take insurance other than the insurance offered by your employer. Also the insurance provided by your employer may not be adequate to provide complete financial protection to your family.

Young people do not need life insurance: We live with a common notion that people die when they are old. But knowing about life’s uncertainties, it is best to take insurance early in life. Having the risk of death covered is definitely better than leaving dependents financially unstable in case of an untimely death. Besides, it is useful to take benefit of the lower premium rates offered to the young. The older you grow; buying insurance becomes tougher due to higher premium rates or refusal because of ill-health.

Source: http://blog.hdfclife.com/did-you-know/insurance-myths

Why Save Tax 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, riffling 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

1.       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 Best Tax Saving Plan  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.

2.       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.

3.       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.

4.       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

1.       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.

2.       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.

3.       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://blog.hdfclife.com/early-tax-savings-benefits-532440

Top 10 Small Business Tax Savings You May Be Missing

As the tax deadline approaches it’s time to start thinking about how to minimize that tax bill, or even better—maximize that refund.
Take a look at this list of Top 10 Tax Savings You Have Missed to squeeze a little more out of your return.

Savings #1 – Initial start-up costs

If 2014 was your first year of operation, and if you made your first sale during that period, you can deduct some or all of your business’s start-up costs. As long as your total start-up costs were less than $50,000, you can deduct $5,000 in general costs (things like buying equipment or renting space), as well as another $5,000 in organizational costs (legal fees, professional consultations, etc.).
Savings #2 – Insurance Premiums

Insurance can help give business owners valuable peace of mind since, let’s face it, accidents happen. Luckily you can claim most insurance premiums on your taxes to help make coverage a little bit more affordable. Not all premiums are deductible but most common ones are, such as liability, malpractice or fire insurance.

Savings #3 – Home office

Plenty of freelancers and small business owners believe taking the home office deduction puts you at higher risk of an audit, but that’s not necessarily true. Even if this were the case, the financial impact of taking this deduction correctly would be worth the risk (assuming you have documentation to back up all your claims).

If you do decide to claim your home office as a deduction, be sure to follow IRS guidelines in regards to calculating the space that qualifies. Then, be sure to account for any overall utility costs that contribute to running your space.

Savings #4 – Credit card processing fees

While many consider them an unretrievable cost of doing business, credit card processing fees are still a business expense. Meaning they’re deductible on your small business taxes! Your processor should provide you with a record of the fees you incurred throughout 2014 (if not, call and ask for these records to be provided). So, deduct those numbers from your taxes and make up for any lost revenue.

Savings #5 – Continuing education

Continuing education should be a major priority for all small business owners and self-employed workers (and the IRS wants to help you make it so). If you’ve attended any seminars, training courses or conferences throughout the year, the bulk of your costs will likely be deductible (but keep in mind that deductions for dining costs associated with conference trips are limited to 50% of the total bill).

Savings #6 – Business gifts

Business owners encounter a number of different occasions where giving gifts to clients is perfectly appropriate. Ever sent a fruit basket to celebrate closing a big deal? Or printed up jackets to give away to top customers? Add these items to your deductions list, gifts made to customers and employees up to $25 in value are 100% deductible on your taxes (nice).

Savings #7 – Health savings accounts

If you have a high-deductible health plan or offer this type of insurance to your employees, it’s worth your time to determine whether or not you’re eligible to tie a health savings account (HSA) to your plan. If you are, setting up this type of account will let you put money away for future medical expenses, in addition to letting your contributions grow (tax-free!!) over time.

Savings #8 – Child labor

We’re not recommending sweatshop labor or inappropriate work practices, but if you have a dependant child who handles work tasks for your business, you can employ them without paying the all of the same payroll taxes you’d pay for an older worker—and potentially claim part of their salary as an expense on your tax return.

This break is only available, however, if your business is structured as a sole proprietorship or as a partnership between you and your spouse. If you’re set up as a corporation, you will not be able to claim this deduction.

Savings #9 – Pet supplies

It’s not crazy talk. If you operate a farm and keep a guard dog on premises for the protection of livestock/crops, you may be able to deduct the costs of its care, including dog food, bedding and veterinary care, as a legitimate expense. Note though that deducting pet supplies requires a verifiable business purpose. ‘ol Fido warming your feet while you work on the computer won’t cut it with the IRS.

Savings #10 – Your FreshBooks subscription

FreshBooks isn’t just a great tool for getting a hold of your business’s finances—it’s also a valuable tax deduction. Most tax advisors agree that software-as-a-service (SaaS) products should be included in the “Other expenses” category of your tax saving plans reports, as they don’t involve a purchase that loses value over time.

Source: http://www.freshbooks.com/blog/top-10-small-business-tax-savings-you-may-be-missing/