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TAX PLANNING

TAX PLANNING. TAX PLANNING – The usual mantra for individuals in the month of March every year. People tend to have the following problems: Last minute advise from tax consultant Salary on hand for the months of February and march would either be negligible or spent totally for tax planning

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TAX PLANNING

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  1. TAX PLANNING TAX PLANNING – The usual mantra for individuals in the month of March every year. People tend to have the following problems: • Last minute advise from tax consultant • Salary on hand for the months of February and march would either be negligible or spent totally for tax planning • Next 3 months after march would again be light purse, because of expenses incurred for tax planning in prior months. • Post June during analysis of the pervious year’s tax planning –worry about the consequences of the wrong advice • Chances of missing better opportunities in the market to avail tax benefits. Citing these problems, we would like to brief you upon an effective way of tax planning which, if improvised, will make your life easy and your investment fruitful.

  2. TAX EMEMPTIONS Tax exemptions can be broadly classified into 3 different heads: • BENEFITS UNDER THE HEAD OF SALARY. • INVESTMENT BENEFITS UNDER SEC 80. • BENEFIT OF HOUSING LOAN AND OTHER TAX SAVING ITEMS.

  3. BENEFITS UNDER SALARY HEAD • CONVEYANCE – Maximum limit of Rs. 9,600/yr • HRA - 40% or 50% of basic in case of tier ii and tier i city respectively or actual’s - which ever is lower. • FOOD COUPONS - In case provided by the company. • MEDICAL ALLOWANCE – Maximum limit of Rs. 15,000 • LTA – As per the company rule.

  4. INVESTMENT BENEFITS UNDER SEC 80-88 AVENUES FOR TAX PLANNING FOR INDIVIDUALS – Maximum limit of Rs. 1,35,000 (A)- BENEFITS FOR Rs. 1,00,000.00. • EMPLOYEES PROVIDENT FUND – Employee contribution only and any voluntary contribution to the fund. • PUBLIC PROVIDENT FUND- Maximum Limit of Rs. 70,000 • LIFE INSURANCE POLICY- Pension plan, Endowment plan, Term plan • FIXED DEPOSIT – Deposits with Tenure of 5 Years • ELSS - Funds with minimum of 3 years lock in period. • NATIONAL SAVING CERTIFICATES- Post office deposits with minimum of 6 ½ years lock in period. • HOUSING LOAN PRINCIPAL REPAYMENT – Maximum of Rs. 1,00,000 • (B)- BENEFITS FOR REMAINING Rs.35,000.00. • INFRASTRUCTURE BONDS – Maximum limit of Rs. 20,000 • MEDICAL INSURANCE – Maximum limit of Rs. 15,000

  5. BENEFIT OF HOUSING LOAN AND OTHER TAX SAVING ITEMS HOUSING LOAN BENEFITS: • PRINCIPAL REPAYMENT - Maximum limit of Rs. 1,00,000 (But under the sec 80c) • INTEREST REPAYMENT - Maximum limit of Rs. 1,50,000 DEPRECIATION BENEFIT: • VEHICLE DEPRECIATION BENEFIT –Avail this if owning a 4 wheeler ( consult your tax consultant regarding the same)

  6. EFFECTIVE TAX PLANNING Analyzing the above heads of tax benefits, we can make structured planning for effective and hassle free tax planning. HERE ARE SOME TIPS WHICH COULD BE OF IMMENSE HELP

  7. INSURANCE • It’s a hedge on risk for life. • It is not an Investment instrument but a Protection instrument. • It should be considered in terms of replacement of future earnings. • One needs to be covered until retirement. • The minimum cover should be decided for the family and anything less is taking risk with the future prospects of the family.

  8. INSURANCE Contd. Keep insurance policy as simple as your life! Get maximum protection – both in terms of sum assured as well as tenure. Terms Policy – High Insurance Coverage, Tenure ranging from 10-30yrs, Lower premium payment. Various options under insurance policies: • Premium return and non return policy • One time premium or regular premium. • Option to also cover accidental death and other dreaded diseases Illustration for a 30 year adult, with a sum assurance of 25Lacs and tenure of 20 years: Regular premium ( Along with rider benefit of 21 Lacs for accidental death and 7.5 lacs for disease) Non return of premium: Rs. 9000/year Return of premium: Rs. 12,100.00/year.(Some part of this is returned at the end of the policy) Single premium ( No rider benefit) Non return of premium: Rs. 59,000.00 one time. Return of premium: Rs. 76,000.00 one time. (Some part of this is returned at the end of the policy)

  9. BEST CASE SCENARIO FOR TAX PLANNING TAX BENEFIT INVESTMENTS OTHER THAN THE SALARY DEDCUTIONS. SCENARIO-1 WITH HOUSING LOAN: a) Principal repayment can be utilized for under the sec 80 up to maximum of 1 lac. b) Rs. 15,000 medical insurance for self, spouse, children and parents. c) Rs. 20,000 investment in infrastructure bonds. Invest continuously for 3 years and from the 4th year it becomes a cycle where, funds invested in first year can be reinvested. So no extra outgo from the pocket from 4th year. d) Could take a term policy to hedge the risk even if the investment does not provide any tax benefit. At this juncture one time single premium is advisable. THIS TOTALS Rs. 1,35,000.00 INVESTEMENT.

  10. BEST CASE SCENARIO FOR TAX PLANNING (CONT) TAX BENEFIT INVESTMENTS OTHER THAN THE SALARY DEDCUTIONS. SCENARIO-2 WITHOUT HOUSING LOAN: a) Term policy to hedge the risk even if the investment does not provide any tax benefit. We would advice to opt for the single premium . b) Rs. 15,000 medical insurance for self, spouse, children and parents. c) Rs. 20,000 investment in infrastructure bonds. Invest continuously for 3 years and from the 4th year it becomes a cycle where, funds invested in first year can be reinvested. So no extra outgo from the pocket from 4th year. d) In the scenario where combined contribution to both the EPF and life insurance premium does not sum up to rs. 1,00.000 then the following instruments can be considered Fixed Deposits: For a tenure of 5 years. Capital protection guaranteed. ELSS: One time investment advised instead of an SIP. As in the case of Infrastructure bonds an investment in this instrument for 3 years will ladder on its own from the 4th year onwards. THIS TOTALS Rs. 1,35,000.00 INVESTEMENT.

  11. Helps us to Help you Thank You Regd. Office: 469/41, 55th Cross, 3rd block, Rajajinagar, Bangalore- 560010 Contact No- +91 80 23157929/8162/8164. Fax- +91 80 23157928. Email ID- productivefinancial@gmail.com

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