I work for a private company with annual CTC of Rs 17.6 lakh, What are the investments which I must do in order to save the tax, Currently I have 4 Life Insurance policies with premium Rs 1 lakh Senior Citizen health insurance of Rs 25k I have a 3 year old daughter, this year I m planning for Sukhanya Samruddhi of Rs 1.5 lakh

Ans: Hi Kalim, There are multiple tax saving options you can use.  Following are few of the popular tax saving options available:

You can save tax up to 1.5 lakhs under section 80C by investing in PF, PPF, ELSS, ULIP, Insurance, home loan principal repayment, etc

Investing in NPS helps you to save further of 50k under section 80CCD which is over and above 1.5 lakhs under section 80C.

Section 80D provides income tax deduction on medical insurance premium paid for self and family. You can claim up to 25,000 for premium paid for self, spouse and kids. In case of senior citizens the limit is 50k.

If you have a home loan, you can also claim tax deduction on the interest paid towards home loan. You can claim deduction for up to 2 lakhs for the interest paid.

Further you can claim the contributions made to certain relief funds and charitable institutions under section 80G.

Ans: Since you have covered many of the commonly used tax saving options, the few available exemptions/deductions are:

1. Tax saving on home loan interest paid, under Section 24, upto Rs 2 lakhs
2. Tax savings on interest repayment on a home loan for first-time owners, under Section 80EE, upto Rs 50,000 (the value of the house to be less than Rs 50 lakhs and the loan less than Rs 35 lakhs) over and above the deduction of Section 24 above.
3. HRA/tax savings on rent paid in cases where HRA isn't paid under Section 80GG, upto Rs 60,000 in a financial year (deduction is not applicable to taxpayers who own a house, but live in a rented house in the same city). It cannot be availed by taxpayers who own a house in another city and claim tax deduction under Section 24 towards repayment of home loan interest on that house)
4. Leave Travel Allowance under Section 10 (5) for domestic travel
5. Tax savings on interest earned from savings bank accounts under Section 80TTA, for a maximum limit of Rs 10,000
6. Reimbursements: You need to check with your company on the various reimbursements possible, like medical, transport allowance, food coupons, vehicle reimbursement, etc

 

Ans: With an annual income of around 90 lakhs, besides utilizing Section 80C for tax savings, you could explore options in old regime such as health insurance deductions under Section 80D, claiming exemptions for home loan interest under Section 24, and optimizing benefits like House Rent Allowance (HRA) under Section 10(14) if applicable. Additionally, consider contributing to the National Pension Scheme (NPS) for an extra deduction under Section 80CCD(1B).

Seeking advice from a tax professional can help tailor these strategies to your specific financial situation and goals.

Ans: Managing finances effectively and minimizing tax liability are key aspects of financial planning. With your annual CTC of Rs. 20 lakhs, it's important to understand that achieving a completely "zero tax" scenario is not feasible. However, strategic investments and proper planning can significantly reduce your tax burden.

Tax Planning Basics
Understanding tax laws and available deductions is the first step. Here's a breakdown of key sections that can help you save tax:

Section 80C
You can claim deductions up to Rs. 1.5 lakhs under Section 80C. This includes:

Public Provident Fund (PPF): A safe investment with tax-free interest and good returns.

Employee Provident Fund (EPF): Contributions to EPF are tax-exempt and grow steadily.

Equity-Linked Savings Scheme (ELSS): These mutual funds offer tax deductions and the potential for high returns, with a three-year lock-in period.

Life Insurance Premiums: Premiums paid for life insurance policies qualify for tax deductions under this section.

Tuition Fees: Payments towards children's tuition fees are also eligible.

Section 80D
You can claim deductions for health insurance premiums:

Self, Spouse, and Children: Up to Rs. 25,000.

Parents: An additional Rs. 25,000 for parents under 60, and Rs. 50,000 for parents above 60.

Section 80CCD(1B)
Contributions to the National Pension System (NPS) offer an extra deduction of Rs. 50,000, in addition to the Rs. 1.5 lakhs under Section 80C.

Section 24(b)
Interest paid on home loan EMIs is deductible up to Rs. 2 lakhs for a self-occupied property.

Investment Strategy for Tax Saving
A well-rounded investment strategy not only saves tax but also builds wealth over time.

Equity-Linked Savings Scheme (ELSS)
ELSS funds are a popular choice due to their dual benefits of tax saving and wealth creation. They have a lock-in period of three years and invest primarily in equities, offering the potential for high returns.

Public Provident Fund (PPF)
PPF is a long-term investment with a 15-year tenure. The interest earned is tax-free, and it offers a safe and steady return.

National Pension System (NPS)
NPS provides an additional tax benefit under Section 80CCD(1B). It also helps in building a retirement corpus. The funds in NPS are managed by professional fund managers, offering a mix of equity and debt exposure.

Insurance for Tax Saving
Term Insurance
Term insurance is a cost-effective way to secure your family’s future. Premiums paid are deductible under Section 80C.

Health Insurance
Health insurance premiums are deductible under Section 80D. It is essential to have adequate health coverage to protect against medical emergencies.

Retirement Planning
Planning for retirement is crucial. Here are some options to consider:

Employee Provident Fund (EPF)
Continue contributing to EPF for tax-free growth and retirement savings.

National Pension System (NPS)
NPS is a tax-efficient way to save for retirement. It allows you to choose your investment mix and offers additional tax benefits.

Children's Education and Marriage
Investing for your children’s future is important. Here’s how you can plan:

Sukanya Samriddhi Yojana
If you have a daughter, this scheme offers high interest and tax benefits. It is designed to secure her future.

Mutual Funds
Create a portfolio with a mix of equity and debt funds. This balances growth and safety, ensuring funds for education and marriage.

Benefits of Actively Managed Funds
Professional Management
Actively managed funds are handled by professional fund managers who aim to outperform the market.

Flexibility
These funds can adjust their strategies based on market conditions, potentially offering higher returns.

Diversification
Actively managed funds invest across various sectors and assets, reducing risk through diversification.

Disadvantages of Index Funds
Lack of Flexibility
Index funds passively track a market index, which limits their ability to respond to market changes.

Potential Underperformance
In volatile markets, index funds may underperform compared to actively managed funds.

Disadvantages of Direct Funds
Lack of Guidance
Direct funds might have lower costs but lack professional advice. This can lead to suboptimal investment decisions.

Time-Consuming
Managing investments on your own requires time and expertise. Investing through a Mutual Fund Distributor (MFD) with a Certified Financial Planner (CFP) offers convenience and professional guidance.

Avoiding Common Pitfalls
Over-Reliance on Insurance Products
Avoid investment-cum-insurance products like ULIPs and endowment plans. They often offer lower returns and high costs. Instead, invest in mutual funds for growth and buy term insurance for protection.

Building an Emergency Fund
An emergency fund is essential. It should cover 6-12 months of living expenses. Keep this fund in a savings account or liquid mutual funds for easy access.

Final Insights
Creating a zero-tax investment plan is not realistic, but you can significantly reduce your tax liability with strategic planning. Leveraging tax-saving instruments, diversifying your portfolio, and ensuring adequate insurance are key steps.

Remember, the key to successful investing is consistency and patience. Regularly review and adjust your portfolio with the help of a Certified Financial Planner to stay on track.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in