No one wants to pay taxes to Government, but he/she has no other option to save taxes except for the following ways:
- Tax Evasion: This refers to illegal non-payment of taxes after they are levied.
- Tax Avoidance: It refers to avoiding the tax using loopholes and shortcomings in the Income Tax Law.
- Tax Planning: It refers to utilizing the various schemes of a financial situation to reduce taxes while complying with the Tax Laws.
Tax planning is now one of the most important concepts in the economic life of any individual, company, or other organization. As we are moving towards achieving the world’s largest economic position, the Government knows the importance of investment. Thus it encourages the citizens to make more investments for tax planning, thus also serving the purpose of nation-building development.
Tax Planning thus serves two purposes; firstly, it relieves the assessee by reducing the amount of tax payable. Secondly, it provides the Government with enough funds to carry out development activities. But not all investments for tax planning are tax-deductible; some are partly deductible while others are non-deductible entirely.
Below we have listed some prominent sources of investments for tax planning that will help you do effective Tax Planning while also getting a handsome interest. These deductions are ranged from Section 80C to 80U.
Savings Taxes under Section 80C, 80D and 80EE
- To lower your taxable income, make an Rs. 1.5 lakh investments for tax planning under Sec. 80C. By investing in NPS under 80CCD, a further deduction of Rs 50,000 can be made (1b).
- The maximum deduction for medical insurance purchase under Section 80D is Rs. 1,000,000 (Rs. 50,000 for the elderly citizen’s family and themselves; Rs. 50,000 for senior parents).
- You can write off up to Rs 50,000 of a house loan’s interest by using Section 80EE.
Where to invest?
Albert Bushnell Hart: “Taxation is the price which civilized communities pay for the opportunity of remaining civilized.”
Unit Linked Insurance Plan (ULIP)
In India, one of the most significant sources of investments for tax planning or financial planning is the ULIP Life Insurance Plan. In the event of one’s passing, it ensures their family is financially secure. Under section 80C of the Income Tax Act of 1961, the premium for a life insurance policy may be written off up to a maximum of Rs. 1.5 lakh.
Furthermore, income from the policy’s maturity is tax-free according to section 10(10D). The income is tax-free if the premium is less than 10% of the amount insured. If the insurance beneficiary’s nominee receives the money, the nominee will still be free from paying taxes.
The taxpayer may deduct 20% of their tax on the premium they paid under Section 80C of 1961. The subsequent circumstances also hold:
- Purchase a life insurance policy by the taxpayer on or before March 31, 2012.
- He is only named insured on the insurance, not their spouse or child.
Public Provident Fund (PPF)
Taxpayers have always regarded the Public Provident Fund as one of their favorite tax-saving strategies, and it is the most widely adopted source of investments for tax planning. The fact that PPF qualifies for exempt-exempt-exempt tax status is one of the main causes of this popularity. You may open your PPF accounts at a bank or post office.
Section 80C of the Income Tax Act allows taxpayers to deduct the number of investments they made during the fiscal year. The highest deductible amount is Rs. 1.5 lakhs. The interest and maturity amount of PPF are tax-free since it comes within the exempt category.
The following choices are available to investors in PPF accounts after the lock-in period of 15 years:
- Remove funds from the account
- Continue for a further five years
Chris Rock: “You don’t pay taxes–they take taxes.”
Sukanya Samridhi Yojna (SSY)
Following the plan, a taxpayer may invest monthly deposits and receive interest through a fixed-income investment. Sukanya Samriddhi Yojana investment is also a deductible expense under section 80C of the income tax code, which is considered one of the most reliable options for investments for tax planning.
The Indian Government sets the plan’s interest rate every quarter, payable when it matures. The plan has a 21-year lock-in period and will mature when that time has passed. A minimum deposit of Rs. 250 must be made annually for 15 years. The account will be disconnected if the minimum payment is not made within a year.
The prerequisites for opening a Sukanya Samriddhi account, which offers tax savings, are as follows:
- This program only provides benefits to female children.
- No girl kid may be older than ten years old.
- The investor must provide evidence of the daughter’s age.
National Pension Scheme (NPS)
The National Pension Scheme, also known as NPS, is a well-liked option for investments for tax planning that reduces income taxes. It is a tax-saving choice open to both public and private sector workers. It enables the depositor to generate a regular monthly income and a corpus for retirement. The depositor’s money is invested in various plans, including equities markets.
NPS accounts come in two different varieties: Tier-1 and Tier-2. A tier-1 account is locked in until the subscriber becomes 60 years old. Under sections 80CCD(1) and 80CCD, the subscriber’s donations to tier-1 are tax-deductible (1B). Since Tier-2 accounts are optional, subscribers may take their money out whenever they choose. Contributions made to tier-2 accounts, however, are not tax deductible.
According to section 80CCD, a person can make investments for tax planning in NPS and claim a deduction of up to Rs. 1.5 lakh. An extra deduction of up to Rs. 50,000 was provided for NPS payments made by individual taxpayers under a new sub-section 1B that was also implemented.
National Savings Certificate
Under section 80C of the income tax act, investments made in NSC for tax planning are eligible for a deduction of up to Rs. 1.50 lakh. In addition to offering tax exemption, it protects the investor’s cash and guarantees interest.
Some of the tax-saving attributes of the NSC include the following:
- The guaranteed interest of 6.8% each year. Section 80C allows you to claim a tax advantage of up to Rs 1.5L.
- You may put down as little as 1 rupee (or multiples of Rs. 100).
- You are free to raise your investment as needed.
- At maturity, the investor will get the full maturity value, which will then be subject to taxation in the hands of the taxpayer.
As we’ve mentioned, several legal tax incentives are aimed at lowering tax payments through investments for tax planning. Anyone subject to the current tax system, whether an individual or a corporation, may profit from these advantages. The income tax system in India has developed over time, making it simpler for people to plan and save money appropriately. One should utilize these advantages within the bounds of the law.
What is tax planning?
Ans: Tax planning is said to be the analysis of the financial situation or its planning. This whole is done from the perspective of the tax perspective. The tax planning is to know the tax efficiency.
What are the best tips you need to keep in mind for tax planning?
Ans: The tax planning will help you get an idea of the federal tax that you are part of. The higher the income, is more you have to pay taxes. You should plan your finances according to your income and the tax slab rate.
What is corporate tax planning?
Ans: Corporate tax planning aids in reducing the liabilities of the tax on a registered company. You can do these things with keeping in mind the taxes imposed on deductions of business transport, office expenses, retirement planning, and many more. You have to do the expenditure keeping in mind these taxes that apply to the company.
The Government also promotes tax planning as it increases cash and investment flow in the economy and reduces illegal tax evasion. Making investments for tax planning is gradually becoming a profession for many who provide their services in tax planning and consultation. Hover over our website Bizness Hub to learn more about Business Startups and Investments.