If tax planning is your last minute job, it is very likely that your budget and personal finance will be a mess owing to your tax habit. To avoid this, you should start planning for your taxes well in advance. Invest small amount of money in a prominent tax saving instrument on a regular basis throughout the year in lieu of a large, one time investment at the last second.
Importance of Tax Planning
Well there are a number of benefits of planning your tax methodically. Let’s have a look.
- Saves Your Income – As you already know, tax evasion is a serious crime. But tax avoidance is not. So you can always avoid tax paying by making use of possible tax deduction as well as tax exemption.
- Ensures Right Investments – Tax planning helps you make the correct investment in different legitimate financial products as well as tax saving instruments. But it all should be done on the basis of your risk profile that saves your income from income tax.
- Lets the Loan Saves Tax – Taking a home loan helps you significantly save on tax.
Guarantees peaceful retirement – Your tax planning helps you use tax saving instruments to ensure significant savings. It also lets you invest in financial products that in turn ensure that you have sufficient money for retirement.
Considerable Factors for Tax Planning
Should you buy endowment life insurance plan for getting tax deduction?
An endowment life insurance policy often charges high premium. An endowment plan ensures both insurance and savings. So you have to pay high premium to get the benefits of insurance and savings. And this ensures that you will be benefited financially on survival and your successors at your death. With such a plan you can expect to get a meager 5% to 7% while most of the premium amount is swallowed as the charge for the plan. On the other hand, if you buy a term life plan that is available against a lower premium in comparison to an endowment plan, you won’t get any benefit on survival. Both the plans offer tax benefits under section 80C. For getting tax benefits, online tax consultant Kolkata suggests that you go for low premium term life plan at an early age and make necessary financial arrangements for your family in case you die untimely.
Is it required to invest in tax saving instruments as per your risk profile?
Your risk profile plays the most important role as it comes to making investments in tax saving instruments. Both ELSS (Equity Linked Savings Scheme) and PPF (Public Provident Fund) give you tax benefit under Section 80C. If you want to keep your primary investment save while earning interest on it, you can invest in a PPF or a 5-year tax saving FD (Fixed Deposit). But if you invest in an ELSS, you should be prepared for taking of risk of stock market crash or down. Though it ensures high return on investment, it involves tremendous risk.
These are just a few important things you should know about tax planning in India. If you want to keep yourself financially stable, you should plan your tax in advance.