TAX PLANNING FOR INDIANS
One of the richest people of our times Warren Buffet says, “Never depend on a single income. Make investment to create a second source”. As far as dynamic economics of our times in concerned, the statements is quite true. However, as we expand our investment portfolio, the tax generation also increases. This is why we need a smart solution to maximize our tax benefits. Here are some solutions to increase the tax benefits and thereby decreasing the tax paid.
- Life Insurance- Apart from being a long term investment, it shall provide security to your family’s future. It deductable under Section 80 C. Unit Linked Insurance Plans (ULIPs) are a better option since they can be converted from equity to debt. Withdrawals from ULIPs are exempted from taxation under Section 10 (10D). Not to mention ULIPs are really cheap as compared to general life insurance plans. One should learn more about disputing an insurance claim as well.
- Pension Schemes- Investment in provident funds shall also amount into deductions under Section 80 CCC. Salaried employees can look forward in increasing their pension scheme contributions.
- National Saving Certificate- The best part of NSC is the security it provides to money. Apart from this, the interest accrued through NSC is also deductable under Section 80 C.
- 5 year Fixed Deposits- Traditional and risk free, it can also help a taxpayer in reducing the tax payable.
- ELSS Mutual Funds- If you are comfortable with taking risks, you can make significant investment in these type of mutual funds in order to claim tax benefits. However, it is recommended that one should do his homework well before making investment under this head.
Note: The total amount deductable under the above options shall not increase Rupees 1.5 Lakhs in the assessment year.
- Rajiv Gandhi Equity Savings Scheme- Though complicated, it is worth trying. The income ceiling of its beneficiaries is Rupees 12 Lakh per annum. The BSE website compiles the scheme as “The investor would get 50% deduction of the amount invested during the year, upto a maximum investment of Rs.50,000 per financial year, from his/her taxable income for that year, for three consecutive assessment years.” It is deductable under Section 80CCG.
- Allocation of Long Term Capital Gains- Getting rid of a family property burdens us with extra tax. In such a situation we can invest the amount from sale of a residential property in a new residential property within 1 year before or 2 years after the sale of such property. Construction of a residential property within 3 years of sale is also subject to deduction. Also a residential property shall include multi storied complex or flats. All such deductions are subject to Section 54, Section 54 EC and Section 54 F. Note that any asset to be considered as Long Term Capital Asset only if it has been held by a taxpayer for not less than 3 years.
- Something for your children- If you are an individual tax payer and are planning to take education loan for your child, you can claim tax benefits under Section 80 E for the interest paid on Education Loan. On one hand, there is no such specified cap for this head, but the benefits could not be claimed on the principle amount. If you have a girl child below 10 years of age, Sukanya Samridhi Yojna can be a good investment. The maximum investment can be upto 1.5 lakh per annum and it can be made for 14 years. The amount matures when the girl turns 21 years of age. So most likely, it shall be beneficial for your girl’s career prospects, higher education or marriage.
- Medical Insurance- Generally once in 3 years, a person between 18-50 years of age is likely to encounter huge medical expenses and hence investment under this head is least recommended. However, if you make investments under this head, its premium is deductable under Section 80 D. Also, it shall cover the taxpayer, his/her spouse and children.
Author: This blog is written by Mr. Amritanshu Tripathi, a passionate blogger & intern at Aapka Consultant.
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