DOES TAX SAVING HAS TO BE SYSTEMATIC?

To get anywhere, you need a plan and the same goes for your financial future. Unfortunately. a financial
plan appears, to most of us, like a visit to the dentist - something to postpone until you wake up
screaming in the middle of the night.

Tax planning is a very important part of your financial plan; however it needs to be integrated in your
whole scheme of savings and not as a separate standalone devil.

You work very hard to earn but more than 10% of your yearly earning will go to the taxes of various
means. To effectively reduce the burden of taxes, tax planning is most important in our desire to reach
towards our financial goals. A well planned financial plan and tax plan can help you save on your tax
payments as illustrated below:

(All figures in Rs.)

Income Tax without Planning Tax with Planning Savings

500,000 25,000 500 24,500
1,000,000 125,000 75,000 50,000
1,500,000 275,000 207,500 67,500

Note:

1. Tax calculations are done with tax rates for AY2016-17

2. It is assumed that the maximum limits of 80C, 80CCD and 80D is utilized
3. Any other deductions which may be available are not considered for simplicity

Just for the sake of saving tax, people end up buying insurance policies or adding more to the PPF
account which is not the only way to save tax. An effective and efficient tax plan must be integrated with
short term or long term needs and also ensure adequate safety for you and your future.

SECTION 80 lists down the instruments, which you can invest in order to save tax. You can invest a
maximum of Rs 1.5 lakh in all these instruments put together and the entire amount of Rs 1.5 lakh will
be deducted from your taxable income.
 MAKE THEM COUNT
Deductions under 80C, 80CCC and 80CCD
Options Minimum Lock-in Period Expected Return
Employee Provident Fund 5 years 8.5-9.5%
Public Provident Fund 15 years 8.70%
Traditional Endownment Plans 5 years 6-7%
Unit Link Insurance Plans 5 years Market Linked
Equity Linked Savings Schemes 3 years Market Linked
Sukanya Samriddhi Scheme Maximum 21 years 9.20%
Bank & Post Office Fixed Deposits 5 years 8-9%
5-year National Saving Certificates 5 years 8.50%
10-year National Saving Certificates 10 years 8.80%
National Pension Scheme Till 60 years of age Market Linked
Tuition Fee of Children NA NA
Home Loan Principal Repayment NA NA

Other benefits to avail under section 80:

Section 80CCD (1B) (Individual)

For financial year 2015-16 or assessment year 2016-17, this new section provides for additional tax
deduction for amount contributed to National Pension Scheme (NPS) of up to Rs 50,000. So for AY2016-
17, total deductions under Section 80 are available up to Rs 200,000.

Section 80D (Individual & HUF)

Deduction up to Rs.25,000 for self, spouse and dependent children and separate deduction of Rs.30,000
for parents is allowed for premium paid towards medical insurance.

Understanding these financial products is very simple, but has been complicated by too many complex
products.

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&Remember,

Tax and Financial Planning is just not for the Rich. On the contrary: 1. they are rich because they
planned well and 2. the not so rich can even less afford a financial mistake