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Hardik

Hardik Parikh  | Answer  |Ask -

Tax, Mutual Fund Expert - Answered on Aug 22, 2023

Hardik Parikh is a chartered accountant with over 15 years of experience in taxation, accounting and finance.
He also holds an MBA degree from IIM-Indore.
Hardik, who began his career as an equity research analyst, founded his own advisory firm, Hardik Parikh Associates LLP, which provides a variety of financial services to clients.
He is committed to sharing his knowledge and helping others learn more about finance. He also speaks about valuation at different forums, such as study groups of the Western India Regional Council of Chartered Accountants.... more
Asked by Anonymous - Aug 21, 2023Hindi
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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,

Given your annual CTC of Rs 17.6 lakh and your current investments, here are some tax-saving investment options you can consider for the financial year 2023-24:

1. Equity Linked Savings Scheme (ELSS): This is a type of mutual fund that not only helps you save tax but also gives you an opportunity to grow your money. They have a lock-in period of 3 years.

2. Public Provident Fund (PPF): You've mentioned planning for Sukanya Samriddhi for your daughter, which is a great choice. In addition to that, you can also consider investing in PPF. It's a long-term investment option that offers tax-free interest.

3. Unit Linked Insurance Plan (ULIP): Since you already have life insurance policies, you might want to look into ULIPs. They offer both insurance and investment under a single integrated plan.

4. National Savings Certificate: This is another safe investment option that you can consider.

5. New Pension Scheme (NPS): It's a voluntary, long-term retirement savings scheme designed to enable systematic savings. It is a mix of equity, fixed deposits, corporate bonds, liquid funds, and government funds.

6. Fixed Deposits: Some fixed deposits offer tax-saving benefits. However, the interest earned might be taxable.

7. Senior Citizen Saving Scheme (SCSS): Since you've mentioned senior citizen health insurance, if you or your family members qualify, SCSS can be a good option. It offers a good interest rate.

Remember, the key is to diversify your investments and not put all your money into one basket. It's also essential to keep in mind the lock-in periods, returns, and tax implications of each investment option.

I hope this helps!
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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Asked by Anonymous - Jul 15, 2024Hindi
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Hi I am 39 years old and my CTC is 20 LPA. Please suggest investment plan for '0' tax
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

..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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