After the Budget 2019, the public in general is happy over the no income tax up to Rs 5 lakh taxable income announcement by interim FM Piyush Goyal. But, rather wasting our time in celebrating the Finance Miniter Piyush Goyal’s big announcement, we should be focusing on our wealth planning too. And that can be done through segregation of our income into taxable and non-taxable category i.e. tax planning.
Tax planning should be seen as a part of financial planning and not be addressed in isolation. Tax planning should be mapped to your overall financial goals and objectives. The process can start with regular savings and investment into various instruments that can create wealth in the long run.
Ironically, most investors chase returns to build wealth rather than saving and investing regularly. For many, tax saving is the only savings they make during the year and hence it becomes even more important to plan this exercise carefully rather than completing it as routine random annual task with the sole objective of saving tax.
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Speaking on the benefit of tax planning Rahul Jain, EVP at Edelweiss Wealth Management told, “The tax planning ultimately leads to investing one’s hard earned savings into various tax saving instruments available. In my view the investment should be made keeping in mind one’s asset allocation and risk profile. If one is young, higher allocation should be done towards ELSS and ULIP. If someone is in early 40s a balanced allocation can be done between ELSS, ULIP and PPF. Someone who is approaching retirement can have a higher allocation to PPF and similar debt instruments. These investments can be used to fund one’s financial goals like children’s education, marriage and retirement.”
The Edelweiss wealth management expert said that Section 80C also provides deduction for payment of life insurance. The term plans are the best option for protecting one’s life. While buying life insurance first ascertains how much cover you will need and evaluate each term plan to select the one most suitable to you. Same should be the case for health insurance, which is one of the most important tools to save money and protect your wealth towards future health uncertainties.
As a first step, it is imperative to ensure that your salary structure or the CTC is tax efficient. Avail of all allowance that is exempt from tax like House Rent Allowance (HRA), Leave Travel Allowance (LTA) and any other special allowance that your employer may provide. These exemptions can reduce the taxable salary.
Apart from the exemptions, avail of popular deductions like:
1] Section 24: Deduction of up to Rs 2 lakhs for interest paid on home loan;
2] 80C (ELLS, ULIP, PPF, life insurance premium);
3] 80D (payment of health insurance premium for yourself and parents);
4] 80E (payment of interest on education loan availed for higher studies); and
5] 80G (for donations made to charitable and religious organisation).
Lastly, it is not ideal to leave tax planning for the last few months. Typically, people get into action when they get a mail from office to submit the investment proof.
Advising people not to make their tax planning in a hurry Rahul Jain at Edelweiss Wealth Management said, “The last minute haste leads to unplanned and random investment which reduces the possibility of wealth creation. Your tax saving portfolio should be well diversified. It should ideally include ELSS, ULIP, PPF, EPF, life insurance and a health insurance. Remember that all these are broad tax-saving recommendations and at best serve as guidelines. Hence, before the financial year ends, make sure your tax planning is in order to ensure your wealth multiplies steadily in the long run.”