Tax & Investment Planning
What is Tax Planning?
Objectives of tax planning?
Highlights of tax planning?
The steps of the tax planning process:
First take into account your total income. This is simply the starting point of the process and involves doing an honest and accurate calculation of your annual and monthly income.
See exactly how much of it is taxable. Your entire take-home pay is not taxable. Some parts of your salary, like allowances for house rent or travel, are not taxable. On the other hand, any profit you make from your investments could add to your taxable income. Thus, understanding your actual taxable income is a must.
Avail deductions to reduce your total taxable income. This can be done through structuring your salary and planning your investments right. For example, profits from a debt fund held for over three years is taxed at 20% after indexation. Interest from a fixed deposit, on the other hand, is taxed at the same rate as your income tax. So if you fall in the 30% bracket, debt funds may be a more tax-friendly option for you.
Lastly, invest some money in tax-saving instruments. For this, you will need to read up on Section 80 of the Income Tax Act. This mentions all tax-related rules. There are many investment options that are available for effective tax planning like Provident Public Fund (PPF), Equity Linked Saving Schemes (ELSS) or National Saving Certificates (NSC). Even your life insurance , health insurance and home loan payments can help you avail tax savings.