Tax Planning
Where Every Angle Matters
Tax planning is a way by which you arrange your financial affairs in such a way that without breaking up any law you take full advantage of all Exemptions, Deductions, Rebate and Reliefs allowed by law so that your tax liability will be reduced.
Actually Government provide deductions, exemptions, reliefs or rebate for the benefits of economy and society. Like if you made donation to Scientific research [u/s 8GGA] then its good for Society and economy too.
Objective of Tax Planning
Claim Deductions under sections 80C to 80U,
It will reduce your tax liability and you have to pay less tax
Makes Investment :- By tax planning, an Tax payer will invest his money in some good funds which will result in productive returns for tax payer and transfer money to government for investment too.
Income Tax Slabs FY 16-17
For Male Individual, Female Below 60 & HUF
Income Tax Slabs I.T. Rates
Rs 2,50,000 NIL
2,50,000-5,00,000 10%
5,00,000-10,00,000 20%
10,00,000 30%
For Senior Citizen above 60 Yrs
Income Tax Slabs I.T. Rates
Rs 3,00,000 NIL
3,00,000-5,00,000 10%
5,00,000-10,00,000 20%
10,00,000 30%
Section 80C Deductibles'-Max 150000/-
Investment Options
❯ ELSS Tax Saving Mutual Funds`
❯ Public Provident Fund
❯ 5 Year Bank FDs
❯ National Savings Certificate (NSC)
❯ Life Insurance Premium/ ULIPís/ Pur of Deferred Annuity
❯ National Pension Scheme
❯ Pension Funds
❯ Senior citizens savings scheme
❯ EPF (Employee Provident Fund)
❯ Sukanya Samridhi Account
❯ Notified Schemes of NABARD
Other Tax Saving-Expenses
❯ Tuition Fees for Children
❯ Home Loan Principal Repayment
National Savings Certificate (NSC)
This is a popular and safe small savings instrument that combines tax-savings with guaranteed returns.
Minimum: Rs 100 per annum with certificates available in denominations of Rs 100, Rs 500, Rs 1,000, Rs5,000 and Rs 10,000.
8.1% compounded half yearly on a 5-year tenure
Tenure: 5 years . Backed by the government, this is one of the safest investment options available at post-offices, which is used by many to create a regular monthly income stream in retirement.
An ELSS is a diversified equity mutual fund which has a majority of the corpus invested in equities. Since it is an equity fund, returns from an ELSS fund reflect returns from the equity markets. This type of mutual fund has a lock in period of 3 years from the date of investment. This means if you start a Systematic Investment Plan in an ELSS, then each of your investments will be locked in for 3 years from the respective investment date. Investors can exit ELSS by selling it after 3 years. Similar to other equity funds, ELSS funds have both dividend and growth options. Investors get a lump sum on the expiry of 3 years in growth schemes. On the other hand, in a dividend scheme, investors get a regular dividend income, whenever dividend is declared by the fund, even during the lock-in period. For tax purposes, returns from an ELSS scheme are tax free. You can claim upto Rs. 1 lakh of your ELSS investment as a deduction from your gross total income in a financial year under Sec 80C of the Income Tax Act.
ELSS funds fall under the exempt-exempt-exempt (EEE) category. Investments get tax deduction under Section 80C, so you don't have to pay tax on the amount invested in the ELSS fund. The capital gains generated by the fund are also exempt from tax as the investments are not withdrawn. Finally, withdrawals are also tax-free because there is no tax payable on long-term capital gains from equity-oriented mutual funds. Since the holding period necessarily exceeds one year, there is no capital gains tax. The Employee Provident Fund and the Public Provident Fund are the only other investment options that enjoy the EEE tax treatment.
NPS is a voluntary contribution system where the pension amount is based on the contributions made by the investor. NPS is an investment which provides investors an option to avail decent market based returns over long term. Periodic contributions will get invested through PFRDA appointed Pension Fund Managers (PFMs) chosen by the investor in a combination of asset classes as per the choice of investor.
Benefits of Joining NPS
• It is voluntary- NPS is open to every Indian citizen. One can choose the amount you want to set aside and save every year.
• It is simple all one has to do is to open an account with any one of the POPs and get a PRAN.
• It is flexible- One can choose their own investment option and Pension Fund Manager and see your money grow.
• It is portable- One can operate their account from anywhere in the country, even if there is change in city, job or selected pension fund manager.
• It is regulated- NPS is regulated by PFRDA, with transparent investment norms and regular monitoring and performance review of fund managers by NPS Trust.
• Low Charges: All charges levied under NPS are defined and regulated by Pension Fund Regulatory and Development Authority (PFRDA) to ensure reasonability of charges
The Public Provident Fund (PPF) Scheme, 1968 is a tax-free savings avenue that was introduced by the Ministry of Finance (MoF) in India in the year 1968. Interest earned on deposits in the PPF account are not taxable. Deposits made towards PPF accounts can be claimed as tax deductions. This makes the PPF Scheme one of the most tax efficient instruments in India. It was launched to encourage savings among Indians in general, especially to encourage them to create a retirement corpus.
• Interest rates: Interest rates are announced by the central government periodically, usually annually. Interest earned is compounded yearly. (The current rate of interest on a PPF account is fixed at 8.1% p.a.)
• Tenure: 15 years; account continuance is allowed beyond maturity for 5 years at every renewal, with or without making additional deposits.
• Initial investment/deposit: Rs.100 to open the account. Annual Deposit amount: Rs.500 - Rs.1.5 lakhs per year (can be revised as per government directive)
• Deposit frequency: A deposit has to be made every year, for 15 years, to keep the account active. Failure to make the minimum annual investment will render the account inactive.
• Withdrawals: Partial premature withdrawals can be made every year from year 7; withdrawals are subject to conditions. Complete withdrawal of funds can be made only at maturity.
• Tax advantages: Interests are tax-free and deposited amounts are tax deductible U/S 80C of the Income Tax Act. Withdrawals are exempt from wealth tax.
Tax Saving FD
• Guidelines
• The following guidelines have been laid out by the Finance Ministry for Investments in Tax Saving Fixed Deposit
• Maturity: 5 years
• Minimum Investment: Rs. 100 and in multiple thereof
• Maximum Investment: Rs. 1,50,000 (Increased from Rs 1 Lakh to Rs. 1.5 Lakh vide Notification No. 63/2014, F.No.142/09/2014-TPL)
• Deduction available to: Individual, HUF
• Interest Rate: As offered by the Bank from time to time
• Tax on Interest earned: As per the Income Tax Slab Rates of the Individual
• TDS on Interest @ 10%
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