Eight Simple Ways to Plan your Taxes. You have got only a few more months to complete this financial year. Very soon you will get a call from your company to submit the proofs for tax saving investments. So why don’t you spend some time on organising your tax plan and understanding different tax saving options and schemes?
Restructuring your salary with some additional components can reduce your tax liability. This restructuring doesn’t require any additional cash outflow. The following components can be efficiently used to reduce your income tax liability.
- Transport allowance to the extend of Rs.1600 is exempt
- Medical expenses which are reimbursed by the employer are exempt to the tune of Rs.15000
- Food coupons like sodexo or ticket restaurant are exempt from tax up to Rs.5000
- Individuals who are all living in a rented accommodation can include House Rent Allowance ( HRA ) as a part of their salary
- Leave Travel Allowance (LTA) can be part of your salary as this can be claimed twice in a block of 4 years.
2) Effective Utilization of Tax Exemption
Tax saving options under section 80 C:
Under this section Rs.150000 investment or contribution can be made in PPF, NSC, Life insurance premium, 5 year FD with banks and Post offices, Mutual Fund ELSS, Principal Repayment of
housing loan, and the tuition fees paid for children’s education.
Tax saving options under section 80 D (1B):
Under Sec 80 D, the premium paid towards the mediclaim policies are exempt. The maximum limit of exemption is Rs.25000 and for senior citizens the limit is Rs.30000 and for covering senior citizen parents there is an additional exemption to the extend of Rs.25000.
3) Properly Structure your Housing Loan
The Principal repayment of a housing loan is one among the good tax saving options where deduction is up to Rs.150000 u/s 80C. The interest paid on a housing loan is eligible for a deduction up to Rs.200000 u/s 24B.
If the housing loan is for a sizeable amount, then it is possible that the principal repayment and interest may exceed the specified tax exemption limit. To utilise the maximum tax benefit, an individual can consider going for a joint home loan with his/her spouse or parent or sibling. This will make sure that both the co-owners can claim tax deductions in the proportion of their holding in the loan and it is a useful tax saving option for the family as such.
4) Tax Plan in Sync with Overall Financial Plan
You should not do your tax plan in isolation. You need to consider the tax saving schemes that are in sync with your overall financial plan. So a tax plan is not only to just save taxes and also it should assist you in achieving your other financial goals like children’s higher education, buying a home or retirement.
5) Avoid Last Minute Rush
In fact the right time to do the tax plan is the beginning of the financial year. If you postpone your tax planning even now and do it in the last minute, then you will not be able to choose the right tax saving schemes/investments. In the last minute rush, you will be forced to choose one of the tax saving schemes which gives the proof immediately. Is the investment sound and profitable? Is there any other better tax saving options? You will not be able to choose the best tax saving scheme and you may settle with a mediocre one.
6) Invest Some Quality Time
Before investing your money, you need to invest your time. You need to take some quality time to understand the various tax saving options and compare their benefits and limitations.
7) Check for Future Commitments in the tax saving schemes:
Some tax saving options / schemes like NSC or ELSS need only onetime investment. Some other tax saving options / schemes like PPF, Ulips need periodical investments year after year.
You need to be careful in choosing a tax saving scheme where you need to commit for periodical future payments. You need to check on a few things like; do you need such a future commitment? Will you be able to meet the future commitments at ease?
The law may change and you may not get any tax exemption for your future payments. Would you consider the scheme irrespective of tax benefit for the future payments?
8) Changed Your Job; Redo your Tax Plan
Did you switch your job in the middle of the financial year? Then you need to redo your tax plan with consolidating the income from both the companies. It is advisable to inform the new company about the income during the particular financial year from the old company. So that your new company will deduct the right amount of TDS. Otherwise you may need to pay extra tax at the end of the financial year.
Whenever you change your job, you need to have a sitting with your financial planner or tax advisor. So that the required changes in your tax plan can be done proactively.
To have a tax plan and investment plan completely in alignment with your financial goals, you should have a well thought out financial plan. If you are really interested in creating a personalised financial plan, then I would firmly suggest you to test-drive our services by opting for