Tax Planning is often considered to be an annual activity, where at the end of a financial year, you plan your taxes and make investments to avail tax saving benefits. But, this is not how it should be done; Tax Planning is an ongoing process, which covers varied aspects especially related to different Investment options, which are not only an ideal way to avail Tax benefits but are earn profits for the same. Therefore, one should look at Taxation Planning not only as a way to reduce your tax liability but also as a means that could significantly contribute to your financial growth and prosperity.
Strategic Tax Planning
The changing norms and provisions related to taxation process be it personal, corporate or any other type, has made Taxation of the most cumbersome topics of discussion. However, irrespective of the fact that you like it or not, but you can’t ignore it. There are number of tools and factors, using which you can efficiently plan and strategize your tax saving investments to earn you maximum benefits.
Best Tax Planning Tools
There are no two doubts about the fact that Public Provident Fund remains the unbeaten leader in the tax saving options. However, there has been gradual development of other tools which opens new avenues of financial benefits to the investor, diversifying the investment options along with reducing your tax liability. Some of the prominent ones are listed below:
Public Provident Fund
PPF is an all-time favorite, because of the investment undertaken in this is eligible for deduction under the 1,00,000 limit of Section 80C, as well as on maturity, you pay absolutely no tax. The amount invested in this scheme is returned without any interest.
· Minimum & Maximum Investment range
* 500 pa and 70,000 pa respectively
· Yield rate:
* 8% pa
* Investor can make withdrawal in the seventh financial year
One can avail tax rebates under Income Tax Act, by investing in life insurance saving schemes for government owned Life Insurance Corporation of India and even other private insurance companies like Bajaj Allianz, Birla Sun Life Insurance, HDFC Life Insurance, ICICI Prudential and more.
Post Office Deposits
Post offices in India also offer you varied savings schemes and options for short term ranging from 1 to 5 year time frame. What makes these investment schemes even more appealing is their eligibility for tax benefits under Section 80C of IT Act. Some of the common post office based tax benefits tools are listed below:
· Post Office Time Deposits
· Post Office Recurring Deposits
· Post Office Monthly Income Scheme [Post office MIS]
· National Savings Certificates [NSC]
· National Savings Scheme [NSS]
· Kisan Vikas Patra – [KVP]
· Public Provident Funds [PPF]
Equity Linked Savings Scheme (ELSS)
ELSS is a relatively new tool, which is emerged as one of the most lucrative tax saving tool recently. Although there is an element of risk involved in these, ELSS investments are popular not only because of its effectiveness in controlling tax liability but also for tax free assured returns which it offers.
Apart from the above mentioned tools, some of the other not so prominent tax saving investment options eligible to earn tax rebates under Income Tax Act, are listed below:
· Tuition Fees including admission fees or college fees paid for Full-time education of any two children of the assesse (Any Development fees or donation or payment of similar nature shall not be eligible for deduction).
· Life insurance premium payments
· Contributions to Employees Provident Fund (EPF) / GPF
· Public Provident Fund (maximum ` 70,000 in a year)
· National Saving Certificates including accrued interest. [NSC]
· Unit Linked Insurance Plan (ULIP)
· Senior Citizens Savings Scheme (SCSS)
· Equity Linked Savings Scheme (ELSS)
· National Pension Scheme (NPS)
· Infrastructure Bonds issued by Institutions/ Banks such as IDBI, ICICI, REC, PFC etc.
· Interest accrued in respect of NSC VIII issue
· 5-Year fixed deposits with banks and Post Office
· Repayment of Housing Loan (Principal)
Therefore, managing tax and planning is not a cumber some exercise, if you know all these basic tax saving tools and their respective advantages. In fact the same can earn you significant gains if you are willing to invest little time in the same.