There are numerous opportunities for minimizing the amount of income tax you pay.
In order to achieve that, you need intelligent income tax planning.
Some Tips:
• Combine your Tax Planning with your Financial Plan so that the products you invest in match your risk profile and your future goals
• A home loan is not necessarily a bad debt. Consider getting a loan while buying a home to claim deductions under section 24 (b) and 80 C
• Charity is good- not only for the receiver, but the giver as well; Check on the validity and receipts before you claim that deduction u/s 80G
• Take advantage of the tax breaks that the IT sections 80C, 80 CCF, 80D and 80DD offer.
• Insuring oneself makes sense- as the premium is exempt u/s 80C (upto 1 lakh) and the maturity amount is tax free
• By taking medical insurance, you not only insure your family against medical expenses, you also get a tax deduction u/s 80D- so take that cover today!
• Always maintain a Record of Your Investments
• File your taxes on time!
Following up with explanation of the above section
Thursday, October 14, 2010
Tuesday, October 5, 2010
When to Start Tax Planning
Many of us start looking for investment tax saving avenues only in February or March, just before the Financial Year is getting over. Huge mistake!
1. You would end up investing your money without putting proper thought to it.
2. Secondly, you would end up losing the interest / appreciation for the whole year.
Instead, decide where you want to make the investments, and start investing right from the beginning of the financial year – from April. This way, you would not only make informed decisions, but would also earn the interest for the full year from April to March.
Still not too late. You have 6 months to go.
START NOW
1. You would end up investing your money without putting proper thought to it.
2. Secondly, you would end up losing the interest / appreciation for the whole year.
Instead, decide where you want to make the investments, and start investing right from the beginning of the financial year – from April. This way, you would not only make informed decisions, but would also earn the interest for the full year from April to March.
Still not too late. You have 6 months to go.
START NOW
Tax Planning
Tax planning is an indispensable part of the financial planning process. Efficient tax planning enables you to reduce your tax liability to the minimum. This can be done by legitimately by taking advantage of all tax exemptions, deductions and allowances while ensuring that your investments are in line with your long term goals.
What tax planning is not...
• Tax Planning is NOT tax evasion. It involves sensible planning of your income sources and investments. It is not tax evasion which is illegal under Indian laws.
• Tax Planning is NOT just putting your money into any 80C investments.
• Tax Planning is NOT difficult.
Planning taxes this year:
a. You will have certain needs and goals to meet. Understand what those are and then figure out how to maximize tax efficiency in your effort to meet them. Tax planning should be a part of the overall financial planning that you must do.
For instance, you might be buying a house. In this situation you need to get a home loan. What should you prioritize and what do you have the capacity to afford? If you blindly put money into an insurance policy, it might not even be sufficient to give you adequate insurance cover. However, if you choose to pay off the principal on your home loan, that could be a better option in this situation.
b. Do not blindly invest money in Insurance. Understand your need understand the policy and then invest. Otherwise you might end up buying insurance which you don’t need with minimal insurance coverage or putting money in instruments where they cannot access the money when they need it.
c. Do not make last minute decisions just because the Accounts Department has reminded you that the internal deadline for submitting proofs is approaching. Tax planning involves planning in advance to avoid the last minute scramble.
Selecting tax saving investments
You should think about the following criteria, before selecting your tax saving investments for the year:
• Liquidity: How quickly will you need the money? Will you need to access the money within the next year or two years or over what duration?
None of the above instruments let you withdraw your money quickly, in fact there is a minimum three year lock in for all tax saving investments.
• Risk and Return: How much risk do you want to take? There is a trade off between the two, some instruments are very low risk, but as a result they give low returns which are capped.
• Inflation protection: The instruments that give you a low return typically are the worst type of investments regarding inflation. This is important because many of the instruments give you a fixed rate of interest, and lock in your money for a long period. This is not a good protection against inflation.
• Tax Exemption: All tax saving investments under Section 80C are alike in one respect that they are tax exempt when they are invested. But they differ with respect to the tax on the income you earn from such an investment as well as the tax on the maturity of the investment
Individuals in India are not fully aware of the tax planning exercise which is why they get a move on at the end of the tax-planning season and make investments. This has negative effect on tax payable by them and they eventually end up paying more taxes than they are required to.
What tax planning is not...
• Tax Planning is NOT tax evasion. It involves sensible planning of your income sources and investments. It is not tax evasion which is illegal under Indian laws.
• Tax Planning is NOT just putting your money into any 80C investments.
• Tax Planning is NOT difficult.
Planning taxes this year:
a. You will have certain needs and goals to meet. Understand what those are and then figure out how to maximize tax efficiency in your effort to meet them. Tax planning should be a part of the overall financial planning that you must do.
For instance, you might be buying a house. In this situation you need to get a home loan. What should you prioritize and what do you have the capacity to afford? If you blindly put money into an insurance policy, it might not even be sufficient to give you adequate insurance cover. However, if you choose to pay off the principal on your home loan, that could be a better option in this situation.
b. Do not blindly invest money in Insurance. Understand your need understand the policy and then invest. Otherwise you might end up buying insurance which you don’t need with minimal insurance coverage or putting money in instruments where they cannot access the money when they need it.
c. Do not make last minute decisions just because the Accounts Department has reminded you that the internal deadline for submitting proofs is approaching. Tax planning involves planning in advance to avoid the last minute scramble.
Selecting tax saving investments
You should think about the following criteria, before selecting your tax saving investments for the year:
• Liquidity: How quickly will you need the money? Will you need to access the money within the next year or two years or over what duration?
None of the above instruments let you withdraw your money quickly, in fact there is a minimum three year lock in for all tax saving investments.
• Risk and Return: How much risk do you want to take? There is a trade off between the two, some instruments are very low risk, but as a result they give low returns which are capped.
• Inflation protection: The instruments that give you a low return typically are the worst type of investments regarding inflation. This is important because many of the instruments give you a fixed rate of interest, and lock in your money for a long period. This is not a good protection against inflation.
• Tax Exemption: All tax saving investments under Section 80C are alike in one respect that they are tax exempt when they are invested. But they differ with respect to the tax on the income you earn from such an investment as well as the tax on the maturity of the investment
Individuals in India are not fully aware of the tax planning exercise which is why they get a move on at the end of the tax-planning season and make investments. This has negative effect on tax payable by them and they eventually end up paying more taxes than they are required to.
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