Taxes affect your earnings, investments and savings. They can impact your financial planning, making you invest more to meet your goals. With the right tax* planning, you can save taxes and hence, get a greater amount for your financial goals.
The concept of tax* planning refers to utilising deductions, exemptions, and other similar provisions from The Income Tax Act, 1961 to lower your tax* payable amount. Tax* planning is legal and does not include any unlawful measures to avoid tax*. It simply guides you to benefit from the provisions under the Income Tax Act, 1961 to save tax*.
The meaning of tax* planning can be better understood by getting to know its benefits and types.
Benefits of tax* planning
Below are the key benefits of tax* planning:
Reduction in overall tax* payable amount
Tax* planning enables you to lower your tax* payable amount. It uses the provisions under The Income Tax Act, 1961 to reduce your taxes and allows you to pay lesser tax* to the government each year.
The lower your taxes, the more money you save. You can then use this money to be financially prepared to meet your goals. This leads to better financial stability in the long run.
Growth of economy
The concept of tax* planning is not limited to an individual alone. It also facilitates the growth of the economy.
The money you save can be used to increase consumption, thereby contributing to the economy. If you choose to invest the money to meet your financial goals, this money will then be invested in the market directly or indirectly, thereby contributing to the economy.
Helps with your investment
Tax* planning promotes investments and helps you prepare for various future goals. For example, Section 80C of the Income Tax Act, 1961, offers tax* benefits of up to ₹ 1.5 lakh per annum on investments like life insurance plans, unit-linked insurance plans, and more. If you invest in them, not only do you get to save tax*, but you also invest in a financially secure future.
Approach towards tax* planning
Tax* planning can be done in various ways. Below are a few key approaches that can be taken for tax planning:
You may start your tax* planning right before the financial year ends. This may be seen as urgent steps taken to lower the tax* liability for the concerned year. The primary purpose is just to save tax*.
You may start your tax* planning at the beginning of the financial year. This will provide you with time for a detailed study and evaluation of different investments, savings instruments, tax* measures, and more. It enables you to invest in the right instruments to meet your financial goals and save tax* at the same time.
You may consider tax* planning by investing basis eligible tax* deductions, exemptions and benefits offered under various sections of The Income Tax Act, 1961. You can benefit from the provisions under Sections 80C, 80D, 80E, and more.
You may have a specific purpose in mind while planning your taxes*. You may accordingly select investments and assets that align with your objective. It includes tax* and portfolio diversification to ensure maximum tax* savings and enhanced returns according to your goals. While the primary focus here is to save tax*, it also involves strategies that can help you earn a good return in the long run.
Tax* Planning In India
Tax planning can be done by investing in modes which are permissible under the provisions of the Income Tax Act, 1961. Some of the modes are as below :
1. Section 80C
You are eligible to claim tax* deductions of up to ₹ 1.5 lakh and save up to ₹ 46,800/- per annum subject to conditions under Section 80C on investments made in the following instruments:
- Life insurance plans like Term plans, ULIPs, Savings/Endowment plans and more
- National Pension Scheme (NPS)
- Fixed Deposit (FD)
- Equity Linked Saving Scheme (ELSS)
- Public Provident Fund (PPF)
- Sukanya Samriddhi Yojana (SSY)
- National Savings Certificate (NSC)
- Employee Provident Fund (EPF)
2. Section 80D
You are eligible to claim tax* deductions between ₹ 25,000/- to ₹ 1 lakh under Section 80D on health insurance plans for yourself, spouse, children, or parents in a financial year.
3. Section 80E
You are eligible to claim tax* deductions on the interest paid on an education loan subject to conditions under Section 80E. There is no upper limit on the deduction and you can claim the tax* benefit on the entire interest for up to eight years.
Tax* savings through retirement planning
Tax* planning for salaried employees, self-employed individuals, and entrepreneurs is important. Tax* planning can be done in multiple ways. It can also be combined with goals like retirement planning. Retirement investments, such as annuity plans provide a fixed regular income for life and offer tax* benefits. This helps you save money.
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*Tax benefits are subject to conditions under Sections 80C, 80D, 10(10D), 115BAC and other provisions of the Income Tax Act, 1961. Goods and Services tax and Cesses, if any will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for more details.