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Ramalingam

Ramalingam Kalirajan  |6275 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 26, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Asked by Anonymous - Nov 03, 2023Hindi
Money

I have retired recently. Have received a decent proceeds. Have already invested in Pradhan Mantri Vayo Vrund Yojana of LIC. 2*15 lakhs already. Have a 50.00 lakhs liquidity . kindly suggest some tax savings schemes for me. I already receive a pension - with an annual tax liability of Rs. 3.00 lakhs

Ans: Congratulations on your recent retirement and your prudent investment choices so far. You've already made a smart move by investing in the Pradhan Mantri Vaya Vandana Yojana (PMVVY). Now, with Rs. 50 lakhs in liquidity and an annual tax liability of Rs. 3 lakhs, let's explore some tax-saving schemes that can also help you achieve financial stability.

Exploring Tax-Saving Investment Options
Senior Citizens’ Saving Scheme (SCSS)

The Senior Citizens’ Saving Scheme is a government-backed savings instrument for individuals above 60 years. It offers regular income and tax benefits.

Strengths

Regular Income: Quarterly interest payments provide steady income.

Tax Benefits: Investments qualify for deductions under Section 80C.

Challenges

Lock-in Period: Five-year lock-in period, extendable by three years.

Investment Cap: Maximum investment limit is Rs. 15 lakhs.

National Savings Certificate (NSC)

NSC is another government-backed fixed-income investment scheme. It is safe and offers tax benefits under Section 80C.

Strengths

Safety: Backed by the Government of India.

Tax Savings: Qualifies for Section 80C deductions.

Challenges

Interest Taxable: Interest earned is taxable.

Fixed Tenure: Five-year lock-in period.

Public Provident Fund (PPF)

PPF is a long-term investment scheme with attractive interest rates and tax benefits. It is suitable for building a retirement corpus.

Strengths

Tax Benefits: Contributions qualify for Section 80C deductions, and interest earned is tax-free.

Safety: Government-backed scheme.

Challenges

Lock-in Period: 15-year lock-in period, but partial withdrawals are allowed after the seventh year.

Investment Cap: Maximum annual investment limit is Rs. 1.5 lakhs.

Tax-Free Bonds

Tax-free bonds issued by government entities offer tax-free interest income. They are suitable for conservative investors seeking regular income.

Strengths

Tax-Free Income: Interest earned is exempt from tax.

Safety: Issued by government-backed entities.

Challenges

Lower Returns: Generally offer lower interest rates compared to other fixed-income investments.

Liquidity: Can be traded in the secondary market but with low liquidity.

ELSS (Equity-Linked Savings Scheme)

ELSS are mutual funds with a lock-in period of three years, providing tax benefits under Section 80C. They invest primarily in equities.

Strengths

Tax Benefits: Investments qualify for Section 80C deductions.

Potential for High Returns: Equity exposure can provide higher returns over the long term.

Challenges

Market Risk: Subject to market fluctuations.

Lock-in Period: Three-year lock-in period.

Optimizing Your Investment Strategy
Diversification

Diversify your investments across different asset classes to manage risk. A mix of fixed-income and equity investments can provide stability and growth.

Balanced Approach

Given your current investments and tax liability, a balanced approach between safe, income-generating investments and growth-oriented investments is ideal.

Regular Monitoring

Keep an eye on your investments and tax liability. Adjust your portfolio as needed based on performance and changes in tax laws.

Utilize Section 80C Fully

Make sure you fully utilize the Rs. 1.5 lakh limit under Section 80C. This includes investments in SCSS, PPF, NSC, and ELSS.

Maximize Tax-Free Income

Consider tax-free bonds to maximize tax-free income. They provide steady, risk-free returns.

Implementing the Strategy
Step 1: Invest in SCSS

Invest Rs. 15 lakhs in the Senior Citizens’ Saving Scheme for regular income and tax benefits under Section 80C.

Step 2: Allocate Funds to PPF

Invest Rs. 1.5 lakhs annually in a Public Provident Fund for long-term growth and tax-free interest. This also qualifies for Section 80C deductions.

Step 3: Purchase Tax-Free Bonds

Invest in tax-free bonds for steady, tax-exempt interest income. This will enhance your regular income without adding to your tax burden.

Step 4: Explore ELSS

Consider investing in Equity-Linked Savings Schemes for potential higher returns and additional Section 80C benefits. Start with a small allocation due to market risks.

Step 5: Consider NSC

Allocate some funds to National Savings Certificates for additional tax savings and safe, fixed returns.

Ensuring Financial Security
Emergency Fund

Maintain an emergency fund equivalent to 6-12 months of your expenses. This will provide a financial cushion in case of unexpected expenses.

Health Insurance

Ensure you have adequate health insurance coverage. Medical expenses can deplete your savings quickly.

Estate Planning

Plan your estate and ensure your financial documents are in order. This includes writing a will and nominating beneficiaries for your investments.

Additional Tips for Financial Well-Being
Stay Informed

Keep yourself updated on changes in tax laws and new investment opportunities. Staying informed will help you make better financial decisions.

Seek Professional Guidance

Consult a Certified Financial Planner for personalized advice tailored to your financial situation and goals. Professional guidance can help optimize your investment strategy.

Regular Review

Review your investment portfolio and financial plan regularly. Adjustments may be needed based on market conditions and personal circumstances.

Empathy and Encouragement
Retirement is a significant life transition, and managing your finances effectively is crucial for peace of mind. Your proactive approach to investing and tax planning is commendable. Remember, the key to successful financial planning is diversification, regular monitoring, and staying informed.

You're already on the right track with your investments in the PMVVY. By strategically allocating your remaining funds into tax-saving schemes, you can reduce your tax liability and ensure a steady income stream.

Conclusion
Your retirement planning is off to a great start. With careful consideration of tax-saving schemes like SCSS, PPF, tax-free bonds, and ELSS, you can optimize your investment portfolio. Diversification, regular monitoring, and professional guidance will ensure financial stability and peace of mind.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Hardik

Hardik Parikh  |106 Answers  |Ask -

Tax, Mutual Fund Expert - Answered on Jul 07, 2023

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Dear Mr. Parikh, Are there any tax saving options available, considering I am on new tax regime. Also, I don't have any home/auto/etc. loan, and stay in my own apartment. Regards, Praveen
Ans: Dear Praveen,

Thank you for your question. I understand that you're looking for tax-saving options under the new tax regime. While the new tax regime does limit some of the deductions available under the old regime, there are still a few options you can consider.

Standard Deduction: A fixed amount of Rs. 50,000 is allowed as a deduction from the total income of salaried individuals. Please note that if you claim this standard deduction, you cannot claim any other deduction for the same amount under any other section of the Income Tax Act.
Employer's Contribution to NPS: If your employer contributes to your National Pension Scheme (NPS) account, this contribution can be claimed as a deduction.
Transport Allowances for Persons with Disabilities: If you have a disability, you may be eligible for deductions related to transport allowances.
Gratuity: If you receive a gratuity from your employer, it may be exempt from tax under Section 10(10).
Leave Encashment: If you receive any amount in lieu of leave not taken, it may be exempt from tax under Section 10(10AA).
Please remember that tax planning should be a part of your overall financial planning. It's important to choose the options that best suit your financial goals and circumstances. If you need more detailed advice, I would recommend consulting with a tax advisor who can provide guidance based on your specific situation.

I hope this helps!

..Read more

Ramalingam

Ramalingam Kalirajan  |6275 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 16, 2024

Asked by Anonymous - Jul 28, 2024Hindi
Money
I would like to seek your advice on tax-saving options. My yearly income is approximately ?35 lakhs. Every month, ?28,000 is deducted for PF. I have medical insurance with a premium of ?50,000 and I contribute to NPS over 12 months. Additionally, I have a home loan with an annual interest payment of ?2 lakhs. Could you please suggest some ways to save on taxes? Thank you for your assistance.
Ans: With a yearly income of Rs. 35 lakhs, you fall into a higher tax bracket, so it's essential to optimise your tax-saving strategies.

Let's explore various options to help you reduce your taxable income and increase your savings.

1. Utilising Section 80C Deductions
Section 80C offers deductions of up to Rs. 1.5 lakh on various investments and expenses. Given your salary, it's vital to ensure you're fully utilising this limit.

Provident Fund (PF) Contributions:

Your monthly PF deduction of Rs. 28,000 amounts to Rs. 3.36 lakhs annually. However, only Rs. 1.5 lakh of this can be claimed under Section 80C.
National Pension System (NPS):

Contributions to NPS are eligible for an additional Rs. 50,000 deduction under Section 80CCD(1B). This is over and above the Rs. 1.5 lakh limit under Section 80C.
Home Loan Principal Repayment:

The principal repayment of your home loan is also eligible for deduction under Section 80C. Ensure you include this when calculating your total 80C limit.
Other 80C Investment Options:

If you have not exhausted your Rs. 1.5 lakh limit under Section 80C, consider investing in other eligible options such as Public Provident Fund (PPF), Equity-Linked Savings Scheme (ELSS), and life insurance premiums.
2. Leveraging Section 24 for Home Loan Interest
Interest Payment Deduction:
You can claim a deduction of up to Rs. 2 lakh on the interest paid on your home loan under Section 24(b). You've mentioned an annual interest payment of Rs. 2 lakh, which you can fully utilise to reduce your taxable income.
3. Maximising Health Insurance Benefits under Section 80D
Health Insurance Premium:
You are already paying a premium of Rs. 50,000 for medical insurance. Under Section 80D, you can claim a deduction for health insurance premiums up to Rs. 25,000 for yourself, spouse, and dependent children.
If your parents are senior citizens, you can claim an additional deduction of Rs. 50,000 for their health insurance premiums. If they are not senior citizens, the limit is Rs. 25,000.
4. Additional Deductions under Section 80E for Education Loans
Education Loan Interest:
If you have an education loan for yourself, spouse, or children, you can claim a deduction on the interest paid under Section 80E. This deduction is available for up to 8 years or until the interest is paid off, whichever is earlier.
5. Contributing to the National Pension System (NPS)
Additional Deduction for NPS Contributions:

Besides the Rs. 50,000 deduction under Section 80CCD(1B), you can also claim a deduction for your own NPS contributions under Section 80C, as mentioned earlier. This can be part of your Rs. 1.5 lakh limit.
Employer Contribution:

If your employer contributes to your NPS account, it can be claimed as a deduction under Section 80CCD(2). This is an additional deduction and does not fall under the Rs. 1.5 lakh limit of Section 80C.
6. Donations and Charitable Contributions under Section 80G
Eligible Donations:

Contributions to certain charitable organisations and relief funds are eligible for deductions under Section 80G. The deduction percentage varies depending on the organisation and the donation amount.
Claiming Deductions:

Ensure you have valid receipts and the organisation is eligible under Section 80G before claiming the deduction. This can help reduce your taxable income while contributing to a good cause.
7. Claiming Deductions for Savings Account Interest under Section 80TTA
Interest on Savings Account:

If you earn interest on your savings account, you can claim a deduction of up to Rs. 10,000 under Section 80TTA. This deduction is available for individual and HUF taxpayers.
Interest on Fixed Deposits (FDs):

Interest on FDs is fully taxable. However, senior citizens can claim a deduction of up to Rs. 50,000 on interest income from FDs, savings accounts, and post office schemes under Section 80TTB.
8. Avoiding Common Tax Mistakes
Accurate Record Keeping:

Maintain records of all your investments, insurance premiums, home loan statements, and other eligible expenses. Accurate records ensure that you claim all possible deductions and avoid unnecessary tax liabilities.
Tax Planning Throughout the Year:

Tax planning should be an ongoing process, not just something to consider at the end of the financial year. Regularly review your investments and expenses to maximise your tax-saving opportunities.
9. Final Insights
By strategically planning your investments and expenses, you can significantly reduce your tax burden. Ensure you are fully utilising deductions under Sections 80C, 80D, and 24(b) for your provident fund contributions, home loan interest, and medical insurance.

Consider contributing to the National Pension System (NPS) for additional tax benefits and explore other options like charitable donations under Section 80G. With careful planning, you can achieve substantial tax savings and improve your financial well-being.

It's always a good idea to consult with a Certified Financial Planner to tailor these strategies to your specific situation. They can provide detailed guidance based on your financial goals and current tax liabilities.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

..Read more

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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