Upload
dinesh-g-mhatre
View
217
Download
0
Embed Size (px)
Citation preview
8/3/2019 Tax Saving Without Investing
http://slidepdf.com/reader/full/tax-saving-without-investing 1/3
Create Wealth the Contrarian Way: Optimizing onTax!By Anil Rego | Y! Money – Fri, Jan 6, 2012 5:06 PM IST
•
•
• 2
Tax planning is often a ritual that people do not give too much importance and is at best considered a
necessary evil. More often than not, for individuals, financial planning itself begins and ends with tax
planning. The fact however is that tax planning is the first and a very important step towards
financial planning.
Suitability Analysis
Today, tax-saving avenues' offer a good range of investment opportunities with different levels of
risk, return and liquidity. Choose an appropriate mix of investments keeping in mind your financial
objectives. Most of the time, we either take excessive risk or too less risk. Do not get carried away by
past data, for eg. when markets are at a high and about to fall, equities will give you the best track
record. On the contrary, when interest rates are at a peak, it is the best time to look at fixed income
investment avenues and lock-in the interest rates for the long haul.
Given the current condition of the markets, both equity and debt pose a fine opportunity to balance
investments. Interest rates are at a peak and it may be appropriate to choose your bank deposits with
5 year lock in which will also provide you with tax benefit. At the same time, global cues have
weakened the equities and most of the investments within this arena are available at lucrative
valuations. If you already hold ELSS funds, it may be the right time to average your holding.
Often, in the last minute frenzy of saving taxes, one dumps all their monies in one single avenue. Do
take a planned and well-informed call. It is recommended to use a combination of investments and
have an appropriate asset allocation, based on your risk appetite. Also keep in mind the tax you need
to pay on the returns from the tax saving investments that you choose.
Tax saving without investing!
This is true contrarian style; where you squeeze benefits without any penny going out of your pocket
and even better, when you squeeze benefits out of expenses.
8/3/2019 Tax Saving Without Investing
http://slidepdf.com/reader/full/tax-saving-without-investing 2/3
1. Exemptions/Reimbursements
First, one needs to look at the reimbursements that are available from the company and take
maximum advantage of the same. Normal expenses that one incurs could help save tax. Some
examples for the same would be Telephone / Fuel Reimbursements, Meal Vouchers, Company Car,
etc. Provisions for these could differ from company to company. A person in the lower tax slabs can
sometimes reduce one's tax liability to nil with exemptions alone!
EXEMPTIONS
House Rent Allowance
Minimum of :1. Actual HRA
2. Rent Paid - 10% of Basic
3. 40% of Basic (Non-Metros) or 50% of Basic (Metros)
Conveyance Allowance Rs. 800 / Month
Leave Travel Allowance
2 trips in a block of 4 Yrs
Amount not exceeding Air Economy or Rail AC I
Fare shall be for shortest distance and for a single destination
Medical Reimbursement Rs. 15,000 / Annum
2. Deductions
There are several deductions available. Section 80C allows a maximum limit of Rs. One Lakh across
investments ranging from — Provident Fund (including Public PF), Infrastructure Bonds, Fixed
Deposits (>= 5 Yrs), NSC, Insurance / Pension Plan, Unit Linked Insurance (ULIP), Equity Linked
Savings Scheme (ELSS), etc. It also includes tuition fees of children and also the repayment of
principal on housing loan.
In addition, Infrastructure bonds worth Rs. 20k / annum is allowed for tax benefit u/s 80CCF.
Infact, given the interest rate levels, this seems to be a lucrative investment avenue. Whilst investing
in infrastructure bonds, it is pertinent to look at the rating, a 'AA+' and above is considered safe for
investing. You would also have the option of choosing annual payout of interest or cumulative, here
again you can choose the one that suits you best. These are typically launched during the fag end of
the financial year and the window to subscribe is open for a brief period ranging from 15 days to a
month.
Medical premiums up to a maximum of Rs 15,000 qualifies for deduction. One can claim an
additional Rs 20,000 for parents (senior citizens).
3. Home Loan benefits
8/3/2019 Tax Saving Without Investing
http://slidepdf.com/reader/full/tax-saving-without-investing 3/3
There is one more reason to buy a house — the tax benefits on your home loan, but remember, this
should definitely not be the sole reason. The EMI that you pay towards such home loan has two
components — Interest and Principal repayment. We have seen that principal will qualify under
Section 80C among other investment avenues. The interest component provides a separate
deduction and has a limit of Rs. 1.5 lakh for a self-occupied property.
As we welcome the New Year, let us vow to plan better and choose the contrarian way to create
wealth and optimize on taxes - and not get caught in the last minute frenzy of tax planning!
Tips for the week
• Understand your long-term financial goals — this is the starting point.
• Start early so that you can do an effective financial plan, along with tax savings. This also
gives you time to carefully evaluate various investment avenues.
• Some tax savings do not require you to invest — take full advantage of them.
• Hedge your Health / Life Risks.
• You can claim a separate deduction for medical premium of your parents.
• Take an informed decision, understand various nuances of investment avenues such as the
time frame for contributions and also the lock-in period for investments.
• If you find it difficult to manage enough money for tax saving investments every single time,
use shorter-term products, so that maturity value can be used to save tax subsequently.
The author Mr. Anil Rego is the CEO and founder of Right Horizons, a leading end-to-end Investment Advisory and Wealth Management firm that focuses on providing
financial solutions that is specific to customer needs.