Tax planning is often considered an annual activity, in which, at the end of a financial year, you plan your taxes and make investments to take advantage of the benefits of tax savings. But this is not how it should be done; Tax Planning is a continuous process, which covers various aspects, especially related to different investment options, which are not only an ideal way to take advantage of tax benefits, but also generate benefits for them. Therefore, one should consider tax planning not only as a way to reduce your tax liability, but also as a means that could significantly contribute to your financial growth and prosperity.
Strategic tax planning
The change in regulations and provisions related to the tax process, be it personal, corporate or of any other type, has made Taxation one of the most cumbersome topics for discussion. However, regardless of the fact that you like it or not, but you can not ignore it. There are a number of tools and factors with which you can efficiently plan and strategize your tax-saving investments for maximum benefits.
The best tax planning tools
There is no doubt that the Public Provident Fund remains the undefeated leader in tax saving options. However, there has been a gradual development of other tools that open new avenues of financial benefits for the investor, diversifying investment options and reducing their tax liability. Some of the most prominent are listed below:
Public provident fund
PPF is an all-time favorite, because the investment made in it is eligible for the deduction below the Section 80C limit of 1,00,000, as well as at maturity, it pays absolutely no taxes. The amount invested in this scheme is returned without interest.
Minimum and maximum investment range
* 500 pa and 70,000 pa respectively
Yield rate:
* 8% per year
Liquidity
* The investor can withdraw in the seventh financial year
Sure
One can benefit from tax refunds under the Income Tax Act, by investing in life insurance savings plans for the Government of India owned Life Insurance Corporation and even other private insurance companies like Bajaj Allianz, Birla Sun Life Insurance, HDFC Life Insurance, ICICI Prudential, and more.
Deposits at the post office
Post offices in India also offer you various savings schemes and short term options ranging from 1 to 5 years. What makes these investment schemes even more attractive is your eligibility for tax benefits under Section 80C of the TI Act. Some of the common post office-based tax benefit tools are listed below:
Time deposits at the post office
Periodic deposits at post offices
Post Office Monthly Income Plan [Post office MIS]
National savings certificates [NSC]
National Savings Regime [NSS]
Kisan Vikas Patra – [KVP]
Public provident funds [PPF]
Equity Linked Savings Plan (ELSS)
ELSS is a relatively new tool, which has recently emerged as one of the most lucrative tax saving tools. Although there is an element of risk involved in these, ELSS investments are popular not only for their effectiveness in controlling tax liability but also for the guaranteed tax-free returns it offers.
Other alternatives
In addition to the tools mentioned above, some of the other not-so-prominent tax-saving investment options eligible for tax returns under the Income Tax Act are listed below:
Tuition fees, including admission fees or college fees paid for the full-time education of any two children of the appraised (any development fee or donation or payment of a similar nature will not be eligible for the deduction).
Life insurance premium payments
Contributions to the Employee Provident Fund (EPF) / GPF
Public Provident Fund (maximum 70,000 in one year)
· National Savings Certificates that include higher interest. [NSC]
Unit Linked Insurance Plan (ULIP)
Senior Savings Plan (SCSS)
Equity Linked Savings Plan (ELSS)
National Pension Scheme (NPS)
Infrastructure Bonds issued by Institutions / Banks such as IDBI, ICICI, REC, PFC, etc.
Increase in interest with respect to the NSC VIII issue
Fixed-term deposits of 5 years in banks and post offices
Home loan repayment (principal)
Therefore, tax management and planning is not a cumbersome exercise, if you know all these basic tax saving tools and their respective advantages. In fact, the same can generate significant returns if you are willing to invest little time in the same.
