Moneyhive Investments Services - TAX Planning

It is important to plan one’s finances properly and equally important is to plan your taxability. By proper tax planning one not only reduces the tax liability but also end up saving towards the various goals one has set at different life stages.

Equally important is to choose a tax saving instrument which can help you achieve your specific financial goal.

Choosing the right tax saving avenue rests on

1) How to avail tax benefits – Tax benefits can be availed by investing in the eligible investments and by making specified expenses under various sections of Income Tax Act. The eligible investments include Life insurance, ELSS, PPF, NSC, NPS while expenses can be school tuition fees, donations, principle repayment of home loan, health insurance premium, interest payments of home loan, education loan.

2) The kind of tax saving instruments – There are two options to choose from – ones with “fixed and assured returns” and “market linked returns”. The former consists of debt assets like PPF, NSC, SCSC, tax saving FD with 5 years period. The ‘market linked returns’ consists of equity asset class like ELSS, ULIP, NPS.

3) The tenure of the investment product – Usually all the above tax saving instruments are medium to long term products. From a three year lock in that comes from ELSS to a 15 year lock in of PPF and lock in till retirement in NPS.

4) The taxability of the investment returns – Another important factor to consider is the post-tax return of the tax saving investments. Mostly fixed and assured returns products such as FD and NSC are taxable. Only PPF, EPF, ELSS and insurance plans enjoys the EEE status i.e tax exempted during investing, growth and withdrawal.

Efficient tax planning should ideally begin at the start of every financial year. Remember, the risks of planning tax saving in a hurry is that there is a high probability of picking up an unsuitable product. Also there is no one instrument that can help you save tax as well as provide safe, assured and highest returns.