Tax planning is often thought of as an annual activity, where at the end of a tax year, you plan your taxes and make investments to reap 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 the different Investment options, which are not only an ideal way to take advantage of Tax benefits but also to obtain profits from them. Therefore, one should consider tax planning not only as a way to reduce their tax liability, but also as a means that could significantly contribute to their growth and financial prosperity.
Strategic Tax Planning
The evolution of the rules and provisions related to the tax process, whether personal, corporate or of any other type, has made Taxation one of the most cumbersome topics of discussion. However, regardless of the fact that you like it or not, you cannot 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 question about the fact 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 deduction under the 1,00,000 limit of Section 80C, as well as at maturity, it pays absolutely no taxes. The amount invested in this scheme is returned without any interest.
Minimum and maximum investment range
* 500pa and 70,000pa respectively
Yield rate:
* 8% per annum
Liquidity
* The investor can withdraw in the seventh financial year
Sure
One can take advantage of tax rebates under the Income Tax Act, by investing in life insurance savings plans for the government-owned Life Insurance Corporation of India, and even other private insurance companies like Bajaj Allianz, Birla Sun Life Insurance, HDFC Life Insurance, ICICI Prudential and more.
Post Office Deposits
Post offices in India also offer you various savings plans and short-term options ranging from 1 to 5 years. What makes these investment schemes even more attractive is their eligibility for tax benefits under Section 80C of the IT Act. Some of the common post office-based tax benefit tools are listed below:
Postal Time Deposits
Post Office Recurring Deposits
Post Office Monthly Income Plan [Post office MIS]
National Savings Certificates [NSC]
National Savings Plan [NSS]
Kisan Vikas Patra – [KVP]
Public Provident Funds [PPF]
Variable Income Linked Savings Plan (ELSS)
ELSS is a relatively new tool, which has recently become one of the most lucrative tax saving tools. Although there is an element of risk involved in this, ELSS investments are popular not only for their effectiveness in controlling tax liability but also for the guaranteed tax-free returns they offer.
Alternatives
In addition to the tools listed above, some of the other not-so-prominent tax-saving investment options eligible for tax refunds under the Income Tax Act are listed below:
· Tuition fees, including admission fees or university fees paid for the full-time education of either of the testee’s two children (Any development or donation fees or payments of a similar nature will not be eligible for 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 with increased interest. [NSC]
Unit Linked Insurance Plan (ULIP)
Savings Plan for the Elderly (SCSS)
Variable Income Linked Savings Plan (ELSS)
National Pension Plan (NPS)
Infrastructure bonds issued by institutions/banks such as IDBI, ICICI, REC, PFC, etc.
Increased interest with respect to NSC VIII issuance
5-year fixed-term deposits in banks and Post Office
Home loan repayment (principal)
Therefore, managing taxation and planning is not a cumbersome exercise, if all these basic tax saving tools and their respective advantages are known. In fact, the same can generate significant profits if you are willing to invest little time in it.