We got few months completed already in this financial year. As we are busy with our day-to-day routine, most of us forget to spend time on our Tax Planning. So why don't you spend some time on organizing your tax plans?
Below are few easy & very simple heads-up information to plan your taxes well in advance! These are the very basic inputs, tips & suggestions to begin your Tax Planning today.
Proper Allocation of Annual compensation
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.
- Conveyance allowance to the extend of Rs.1600 per month is exempt.
- Medical expenses which are reimbursed by the employer are exempt to the cap of Rs.15000 per annum.
- Food coupons like Sodexo or Ticket restaurant are exempt from tax up to Rs.60000 per annum.
- Individuals who are living in a rented accommodation can include House Rent Allowance (HRA) as a part of their salary. There are three criteria based on which the HRA exemption is granted.
- Leave Travel Allowance (LTA) can be part of your salary as this can be claimed twice in a block of 4 years.
As far as possible, utilize the maximum exemptions available under sections 80C & 80D. The maximum exemption available under section 80C is Rs.150,000 which includes the investments or contributions to the following:
- Employee Provident Fund (EPF)
- Public Provident Fund (PPF)
- Life Insurance Premiums
- 5-year Tax Saving Fixed Deposits (FD) with Banks and Post offices
- Mutual Fund Investments on ELSS
- Principal Repayment of Housing Loan
- Tuition fees paid for children's education, etc.
Under Sec 80D, the premium paid towards the Medical Insurance Policies are exempt. The maximum limit of exemption is Rs.25000 and for senior citizens the limit is Rs.30000. Medical Insurance Premiums paid on behalf of parents are also exempt to a cap of Rs.25000 and for senior citizens the limit is Rs.30000.
Properly Structuring your Housing Loan
The Principal repayment of housing loan is eligible for a exemption upto Rs.150,000 under 80C (as stated above). The interest paid on the housing loan is eligible for exemption upto Rs.200,000. 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 limits. 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.
Tax Plan in Sync with Overall Financial Plan
You should not do your tax plan in isolation. You need to do it 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, retirement,etc.
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 investment. In the last minute rush, you will be forced to choose a scheme which gives the proof immediately. Is the investment sound and profitable? Is there any other better options? You will not be able to choose the best scheme and you may settle with a mediocre one.
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. Consult with your Financial Advisor and understand the best investment options suitable for you.
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 by 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 advisor so that the required changes in your tax plan can be done proactively.With proper tax planning you can reduce your tax liability; save more; invest better and become wealthier.
Investments and Tax planning would vary from one individual to another based on the individual's personal financial status and the personal financial goals. For best investments which would suit you, please discuss with your Financial Advisor!
For queries on Advanced Finance & Tax planning, You may please contact
| emkfinancialadvisory@gmail.com |
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