Tax Saving – Page 3

September 14, 2021

5 Most Popular Ways to Save Tax

1. Equity Linked Saving Scheme (ELSS)

As the name suggests, Equity Linked Saving Scheme or ELSS is a type of mutual fund scheme that primarily invests in the stock market or Equity.

Investments of up to 1.5 Lac done in ELSS Mutual Funds are eligible for tax deduction under section 80C of the Income Tax Act. The advantage ELSS has over other tax-saving instruments is the shortest lock-in period of 3 years.

This means you can sell your investment only after 3 years, from the date of purchase! However, to maximize returns from ELSS funds, it is recommended to keep your investments intact for the maximum duration possible.

If you have an ELSS SIP (Systematic Investment Plan), each installment has a lock-in period of three years, which means each of your installments will have a different maturity date.

2. Life Insurance

Life insurance policies can be useful tax planning tools because the policyholder is eligible for tax benefits under the Income Tax Act 1961 (Act).

Though there are multiple modes for saving tax, life insurance is one of the most effective tax planning instruments. Plans from Life Insurance can be used for protection, long-term savings, and tax planning.

3. Health Insurance

Health care plans provide tax benefits. Premiums paid towards your health care policy are eligible for tax deductions under Section 80D of the Income Tax Act, 1961. The quantum of the deduction is as under:

A) In the case of the individual, Rs. 25,000 for himself and his family
B) If an individual or spouse is 60 years old or more the deduction available is Rs 50,000
C) An additional deduction for insurance of parents (father or mother or both, whether dependent or not) is available to the extent of Rs. 25,000 if less than 60 years old and Rs 50,000 if parents are 60 years old or more.
D) For uninsured super senior citizens (80 years old or more) medical expenditure incurred up to Rs 50,000 shall be allowed

4. National Pension Scheme (NPS)

A tax exemption of Rs.1.5 lakh can be claimed on the employee’s and employer’s contribution towards the National Pension System (NPS). Tax benefits can be claimed under Section 80CCD(1), 80CCD(2), and 80CCD(1B) of the Income Tax Act.

A) 80CCD(1), which comes under Section 80C, covers self-contribution. Salaried employees can claim a maximum deduction of 10% of their salary, while self-employed individuals can claim up to 20% of their gross income.

B) 80CCD(2), which is also a part of Section 80C, covers the employer’s contribution towards NPS. This benefit cannot be claimed by self-employed individuals. The maximum amount that an individual is eligible for deduction is either the employer’s NPS contribution or 10% of basic salary plus Dearness Allowance (DA).

C) Under Section 80CCD(1B), individuals can claim an additional amount of Rs.50,000 for any other self-contributions as an NPS tax benefit.

Therefore, individuals can claim up to Rs.2 lakh as tax benefits under NPS.

5. Home Loans

A) Under Section 80C, you can claim a deduction up to ₹ 1.50 Lakh for the principal repayment done in the financial year.

B) Under Section 24B, you can claim a deduction for up to ₹ 2 Lakh for the accrual and payment of interest on the home loan.

C) Under Section 80EEA, you can claim a deduction for up to ₹ 1.50 Lakh for the interest payment of a home loan availed during the financial year.

D) Under Section 80EE, you can claim an additional deduction of up to ₹ 50,000 for the interest payment of the home loan, if you have availed home loan for an amount less than ₹ 35 Lakh and the value of the property is within ₹ 25 Lakh.

E) In the case of a joint home loan, each borrower can claim a deduction of principal repayment (section 80C) and interest payment (section 24b) if they are also the co-owners of the property.

June 12, 2021

Don’t Wait To Start Saving, Take Action Today

In life, we need to take action. Today, I need everyone to start saving immediately if you haven’t yet.

How many of us have always thought about saving but think that we can always do it tomorrow? We always think that we can wait, but you will be waiting forever to be financially free too.

1. We can’t wait to go on a vacation but we can always wait to pay our mortgages.

2. We can’t wait to get rich quickly but we can always wait to learn how to get rich through time.

3. If you give yourself excuses, stop.

4. We can’t wait for early retirement but we will have to wait.

5. If it, is you, change?

6.If you want to feel financially secure, save.

7.We can’t wait to leave work but we can always wait to learn how to increase our wealth.

Trim down your spending and start saving. Otherwise, I guarantee you will regret it.

June 8, 2021

4 Reasons to Invest in NPS

Here are some of the reasons that make NPS a go-to solution to retire rich while at the same time avail tax benefits.

Accumulate Wealth for Retirement

With NPS, you can create a corpus for retirement and secure a pension for yourself after retirement.

You can withdraw up to 60% of the accumulated corpus at the age of retirement and utilize the remaining corpus to buy an annuity to receive a pension regularly.

Get Extra Tax Deduction of Rs 50,000

Your investments in NPS make you eligible to claim an additional tax deduction of up to Rs.50,000 under section 80 CCD(1B) over and above the tax benefits of Rs. 1.5 Lakh available under section 80C.

Earn Market-linked Returns

NPS provides you an opportunity to earn market-linked returns that beat inflation and help you to accumulate a relatively larger corpus for retirement.

Enjoy the Option to Rebalance the Portfolio

Your NPS portfolio gets rebalanced once every year wherein your allocations in equity shares are shifted to debt as your age increases.

March 8, 2021

5 Health Insurance Benefits

The treatment costs of illnesses have been rising, therefore the need to have health insurance cannot be understated.

Having Health Insurance is not mandatory from the government of India but ignoring it could prove costly. Various medical policies offer different features and benefits.

Health insurance policies are of two types –

1. Individual Plan

2. Family Floater Plan

In an individual plan only, you are covered and the sum assured is available only on your hospitalization, whereas in the Family Floater plan other members of the family can be covered.

The cover is available on hospitalization of any of the members who are covered under the policy.

You take a health insurance plan with a clear intent to protect your capital from getting eroded.

Hospitalization expenses can cause a serious dent in your savings which could include the cost of medicines, doctors and nursing fees, and prescription costs. There are health insurance companies that offer daily hospitalization cash expenses.

Pre and Post Hospitalization Expenses

While all insurance companies cover hospitalization expenses, still it is suggested that you check if the policy you intend to buy covers pre and post-hospitalization expenses.

These costs could cost you a lot of money depending on the type of illness and treatment required.

List of diseases Covered

The policy that you have could have a feature or enhancement to the current benefits which could be a result of insurance companies subscribed plan, regulatory mandate, or it can also be because the insurance company has decided to extend these benefits as you have not claimed for a long time.

Few medical conditions which are covered can be extended, so one needs to be in communication with the health insurance company.

Top-Up

There are instances like getting a promotion or a salary hike, birth of a child where you might feel that the current health insurance coverage might not be sufficient and you need to enhance your cover. Getting a new health insurance plan can be a new process.

This is where the top-up option comes in handy. It allows getting an extra sum assured on top of the existing cover. Unlike a new plan, you don’t have to go for medical screenings for buying a top-up.

Income Tax Benefit

Payments made towards Health Insurance qualify for deduction under section 80 (D) of the Indian Income Tax Act.

If you buy health insurance for yourself or your family then you get a tax deduction of up to Rs 25, 000 and if also take a policy for your parents who are senior citizens then the tax benefits available increases up to Rs 50, 000.

Additional Benefits

You can also opt for additional benefits like the cover for ambulance charges, day-care procedures, health check-ups, and vaccination charges.

March 8, 2021

5 Lessons for Term Insurance Buyers

We are trying very hard to make savings which could come in handy as the economy of our nation India continues to steam ahead.

Effective financial planning is needed to consider your financial requirements and goals. People will always search for financial instruments which give them higher returns on investments.

Term Insurance Policies are a financial instrument that helps you to get the benefits of protection and tax benefit.

It helps the family to stay financially secured in case of the demise of the policyholder, therefore, buying a term insurance policy is an important instrument when one thinks about taking life insurance.

Online Purchase of term plans can be the first crucial step toward making a successful financial strategy. It offers you protection against the unknown and can be used as a supplement for retirement income.

Buy for the Right Reason

You need to analyze the need you want to take up term insurance. You need to remember that you are buying term insurance for a specific purpose that offers cover to your family in case of your demise.

Tax benefits can’t be the main reason for your decision to purchase Term Insurance. This policy funds your retirement and the education of your child. If you are buying this at a young age then it would cost you cheaper.

Deciding the Cover Amount

To arrive at the final sum of term insurance, customers need to estimate their annual income, salary, monthly expenses, current and future expenses like school fees, the mortgage to take care of the financial requirements of their family after their demise.

Tenure of Policy

The tenure of your life insurance policy needs to be Retirement Age minus the Current Age, if your current age is 35 years of age and you want to retire at the age of 60, policy tenure would be 25 years. Some plans offer high life insurance cover till the age of 75.

Additional Coverage & Benefits

Add-On is riders that you can take along with a base cover, some of them are critical illness rider, accidental death benefit rider, waiver of premium.

The benefits are available at a higher premium which is added to the base premium. We need to understand the importance and relevance of these riders so that a proper selection of the riders can be done.

Credentials of Life Insurance Company & Its Claim Expense

Before you finalize a life insurance policy, you would need to be completely assured of the credentials of your chosen life insurance company.

Factors which one should look at include Assets under Management and Solvency Ratio.

December 29, 2020

5 Things to know before investing in ELSS Mutual Fund

Your insurance agent may be pushing life insurance as the best option, while your friend extols the benefits of a plain vanilla PPF account or even a tax saving FD with a bank.

And yet, there’s an 80(C) instrument that not just has a relatively short lock-in period of just 3 years – but has delivered a 5-year category average return exceeding 15% per annum and a 10-year annualized return of more than 17% per annum.

These are tax saving mutual funds or ELSS (Equity Linked Savings Schemes. These numbers may seem tempting, but make sure you’ve understood a few things about ELSS funds before you say “Tax Saving Mutual Funds Sahi Hai” and jump in with both feet!

1. They Have no Premature Exit Option

Tax saving mutual funds have a hard lock-in period of 3 years, and there are no options for partial or complete withdrawal. If you’ve invested in more than once tranche over the course of a year, each tranche will be treated as a separate purchase and will have to complete three years before you can access them.

2. They are High Risk in Nature

Being equity-oriented in nature, ELSS funds tend to be quite volatile. In a sense, that’s the price to pay for a significantly higher long-term return compared to low-risk products.

However, if you’re not willing to withstand ups and downs in your fund value, give ELSS funds a pass.

3. Their Returns Are Non-Linear

Many investors who are used to the linear returns associated with traditional products tend to get quite disconcerted by ELSS funds.

Understand that ELSS funds may go through phases of flat or even negative returns, but things tend to average out over the long term as cycles reverse. It’s vital to set your expectations right while investing.

4. The Dividend Option isn’t a Very Smart Idea

You may be tempted to go for the dividend pay-out option in an ELSS, but know that this isn’t a good idea.

First, you’ll take a hit of 15% in terms of dividend distribution tax. Second, dividends from ELSS funds are non-predictable in both timing and quantum, so you can’t really base any plans around them.

5. SIP’s are a Better Idea Than Lump Sums

For the next fiscal year, start a SIP in an ELSS fund instead of investing your money as a lump sum at the end of the fiscal year.

Your unit costs will get averaged out neatly, and it’ll be a lot easier on your pocket too!

December 19, 2020

4 Tips for the smooth Health Insurance Claim.

So in this blog, I will talk about what you should do to extract the maximum value from your policy during claims and come out of the process truly satisfied

One of the biggest reasons for dissatisfaction with claims is a lack of awareness of the policy terms and conditions.

It can’t be stressed enough that every policyholder should read one’s policy document as soon as you receive it and if any terms and conditions are not clear, you should call us up at your insurer to understand more about it.

1. Limits on certain procedures

Your policy will have limits of certain procedures like the maximum price of the room that you can avail of.

Now you might want to go for a higher-priced room and you’ll assume that you can simply pay the difference between the actual rent of the room and the allowable limit. Please don’t do that.

Contact your insurance company before you do something like this. Insurers often treat room up-gradation as a partially payable claim.
In other words, never decide to alter the terms of your insurance contract unilaterally.

2. The minimum hospitalization required is 24 hours

Most health insurance policies require the patient to be admitted for a minimum of 24 hours or more to avail of the policy benefits.

This is a firm rule but excludes a few day-care procedures which will be clearly mentioned in your policy document. So if you were to go to your hospital for a tetanus shot, for example – you won’t be able to file a claim on that basis.

3. Waiting period on certain diseases

The third area you need to pay attention to is your waiting period for certain diseases. A waiting period is a sort of a hibernation period during which any claims made will not be admissible

A good number of consumers are not aware that claims for certain conditions are inadmissible for up to two years.

While these are a handful of conditions but it includes popular ones like tonsils, hernia, cataract, etc. A list of these medical conditions will be available in your policy wordings.

And finally, there is a waiting period on pre-existing conditions where there is a wait of 3 -4 years.

This is another clause that several policyholders are not aware of because they did not read the policy document and leads to dissatisfaction when they apply for claims within the waiting period for pre-existing ailments.

A common problem related to this is that consumers don’t state their pre-existing condition while taking the policy. This generally happens under two circumstances.

One, when consumers allow agents to fill the proposal form on their behalf. Two, when they make the application process very lightly and leave these details accidentally or on purpose.

This is a very difficult situation for the policyholder and the insurer. But because every insurance contract was agreed upon based on good faith, there is every probability a claim will not be admissible in case the declaration made by the policyholder is false or partial.

4. Examine the plan’s co-payments, sub-limits, and exclusions

The fourth area and the last of the key clauses that have a major impact on the claims are limiting conditions like co-payments, sub-limits, and exclusions.

Co-payments:

Co-payments are where you will have to pay part of the claim and the insurer will pay part of the claim.

If you have ever made a car insurance claim without having zero depreciation on your car insurance policy, you would have noticed that you had to pay like 30-35 percent of the total bill to the workshop and the insurance company paid the rest.

Similarly, co-payment may be triggered in your health insurance contract in some situations which is why you should read the policy document carefully once you receive it.

Sub-limits:

The same is true for sub-limits which by definition mean that the insurance contract has a capping on how much is payable for a particular illness.

Sub-limits are used for procedures like cataract, total knee cap replacement, and kidney dialysis. These too will be in your policy document and will go something like Rs 20,000 per eye for cataract removal.

Exclusions:

And finally, the exclusions, which becomes the cause of a lot of hardship. Most health insurance policies don’t cover maternity and childbirth, yet a huge number of claims are lodged toward these due to a lack of awareness of policy exclusions.

Other exclusions in the policy include participation in adventurous activities, abuse of intoxicants like alcohol, mental disorder-related ailments, etc.

Some smaller payments are generally not included. Again, most policyholders assume that these expenses are claimable but that is not the case.

Some expenses which are not payable by health insurance include registration and discharge charges, cost of hearing aid, any toiletries, donor screening charges, etc.

Understanding co-payments, sub-limits, and exclusions are a must to ensure you are claiming for the right procedures as contracted under your health insurance contract.

The secret to a happy claims experience is to have a clear understanding of what is claimable and what is not under the terms of your policy – most of which are available in the policy wordings. This includes inclusions, exclusion, waiting period, sub-limits, etc.

Conclusion

If you are thorough in your research, you wouldn’t have to worry about claim rejection. And when you know what is in your policy, then it also gives you the necessary knowledge to fight for any unjust calls made by the insurer’s claims team.

December 14, 2020

Does SIP in an ELSS Makes Sense?

With the growing awareness about Mutual Funds more than doubling the industry’s assets in the past three years, more and more people are catching on to the fact that for tax saving, Mutual Funds Sahi Hai! ELSS (Equity Linked Savings Schemes) funds have shot up in popularity in the past year or two. Here are a few reasons why you should consider starting a SIP in an ELSS.

No Year-end rush

So many of us get caught up in the struggle of putting together enough funds to invest in tax saving schemes at the very end of each fiscal year. Not only is this stressful; it also puts you at risk of taking ill-thought-out decisions that you could potentially end up regretting later.

By running a SIP in an ELSS throughout the year, you’ll have completed the lion’s share of your tax-saving investments well in time – so while your friends and colleagues are fretting, you can sit back and relax!

Long Term Compounding

It’s a well-known fact that investments that are linked to the stock markets need the magic element of time to compound and grow.

By continuing your SIP in an ELSS over the long term, you’ll ensure that your money compounds – that is, earns ‘returns on returns’, and therefore outpaces inflation over the long run.

Compare this with tax saving FD’s or PPF accounts, which do not compound your money, and you’ll see the difference that a SIP in an ELSS Mutual Fund can make.

Rupee Cost Averaging

Since ELSS funds are linked to the equity markets, they can potentially be volatile. For this reason, you may find yourself in the unlucky position of having invested in an ELSS just before markets begin to correct, as many investors who deployed lump sums in ELSS Mutual Funds on or before 31st January this year realized.

By running a SIP in an ELSS, you’ll ensure that the average cost of your ELSS units gets averaged out neatly through the ups and downs of the markets.

December 4, 2020

ELSS Mutual Fund – 3 Mistakes to Avoid

3 ELSS Mutual Fund Related Mistakes to Avoid

Of late, ELSS (Equity Linked Savings Schemes) or “Tax Saving Mutual Funds” have gained tremendous popularity. More and more investors are starting to believe that for saving taxes, ELSS Mutual Funds Sahi Hai!

And why not? As a category, Tax Saving Mutual Funds have grown investor wealth at nearly 18% per annum between 2013 and 2020 – nearly twice as fast as traditional choices such as NSC and PPF, and almost three times faster than traditional Life Insurance.

Their shorter lock-in period of three years has added to their allure.

All the obvious advantages of ELSS Funds as an 80(C) instrument notwithstanding, they possess a few all too common pitfalls too. Here are three of them that you must avoid at all costs.

1.Not understanding the risks

Unfortunately, there are no free lunches in the investment world. Increased return potential will invariably be accompanied by an increased risk of capital erosion. Being equity-linked, ELSS funds are high risk in nature – during the crash of 2008 & Covid’19 crisis many ELSS funds fell to nearly half their value!

As an investor, you would do well to understand the risks associated with ELSS funds before taking a final decision.

If you’re very risk-averse, you may want to consider splitting your tax-saving amount between ELSS funds and other lower-risk instruments such as PPF or Tax Saving FD’s – lower returns notwithstanding.

Respecting your unique investment preferences and risk tolerance levels and critical for long-term investing success.

2.The Investing in one shot

A common ELSS Mutual Fund related mistake – is to hold back until the last moment and make a lump sum investment into a tax saving mutual fund and the very end of the fiscal year.

While this approach would benefit you if you luckily end up catching a market bottom; it could work against you if you end up investing at a market peak (neither of which can be predicted).

A much smarter approach would be to start a Mutual Fund SIP (Systematic Investment Plan) in an ELSS Mutual Fund at the start of the financial year, after computing your projected deficit for the year.

For instance – start a monthly SIP of Rs. 12,500 in 12 months will make 1,50,000. In doing so, you’ll be benefiting from a mechanism called “Rupee Cost Averaging” which greatly mitigates the risks associated with the stock markets.

In the long run, your returns will be a whole lot smoother and less volatile, and you’ll worry about your investments much less.

3.The Fixating on the 3-year lock-in

By fixating on the three-year lock-in, many investors harbor the mistaken belief that three years is a sufficient time horizon to invest in ELSS Mutual Funds. In reality, a time horizon of five to seven years is a lot more appropriate, since a Tax Saving Mutual Funds is essentially a 100% equity-oriented investment.

In situations where lump sum investments are made when market valuations are already stretched (such as today’s scenario), it is quite likely that ELSS returns could be flat to negative over a three-year period, with a couple of rough-rides thrown in during the course too.

In such situations, investors need to be willing to extend their time horizons by a further three to four years (beyond the mandated three-year lock-in) to really reap rewards. While you can derive a degree of comfort that the mandated lock-in will finish within 36 months, you need to mentally commit yourself to a longer investment horizon if you’re opting for a Tax Saving Mutual Fund.

November 25, 2020

4 Reasons to Invest in NPS

National Pension System (NPS)
Launched by the Government in 2004 and opened to the public in 2009, NPS is a voluntary retirement scheme. By investing in it, you can create a retirement corpus and also get a monthly pension for life after retirement.

It is regulated by Pension Fund Regulatory Development Authority or PFRDA, and any Indian national between the age of 18 and 65 can join it.

Since it’s a retirement scheme, an investor can’t redeem his money before the age of 60. However, partial withdrawal is allowed in specific needs like children’s education.

Now let’s look at its tax benefit:
You can claim a deduction against your NPS investment only for investments done in Tier 1 account, so while investing do take care of this.

The Tax Benefits under Section 80CCD (1B)
This is an additional tax benefit given only to NPS investors. Under this section, you can claim tax deductions for your investments up to Rs 50, 0000. This is over and above the deduction that you can claim under Section 80C.

So, you can claim tax deduction up to Rs 2 lakh simply by investing in NPS – Rs 1.5 lakh under Section 80C and another Rs 50,000 under Section 80CCD (1B). That means if you fall under the tax bracket of 30 percent, you can save Rs 62,400 in taxes.

The Tax Benefits under Section 80C
NPS is one of the listed investment options in which you can invest and save tax under Section 80C. The deduction limit for this section is Rs. 1.5 lakhs, and you can invest the entire amount in NPS if you wish and claim the deduction.

The Tax Benefits under Section 80CCD (2)
This benefit can be availed on the contributions made by the employer; hence, this one is meant for the salaried individual and not self-employed.

Government employees can claim 14 percent of their salary tax deduction under this section. Meanwhile, for private-sector employees, it is capped at 10 percent of their salary.

Let’s see the benefits of NPS through an example:
Suppose a corporate employee earns Rs 7 lakh as the basic salary and another Rs 3 lakh as Dearness Allowance.

So he can claim Rs 1, 00,000 (10 percent of Basic + DA) on his employer’s contribution. Besides, if he adds the deductions under Section 80CCD (1B) and Section 80C, he can claim deductions up to Rs 3 lakh.

NPS Tax Deductions for a Salaried Individual

Basic Salary ₹ 7 lakh
DA ₹ 3 lakh
Deductions under 80C ₹ 1.5 lakh
Deductions under Section 80CCD (1B) ₹ 50,000
Deductions under Section 80CCD (2) (10% of Salary + DA) ₹ 1,00,000
The total deduction that can be claimed ₹ 3 lakh

The Tax benefits on returns of and maturity amount
Tax benefits of NPS don’t just end at the investment amount. As an investor, you don’t have to pay any tax on the returns or the maturity amount also. This kind of tax treatment is called EEE i.e. exempt-exempt-exempt. In India, this tax treatment is available only on a selected few financial products.

Conclusion
NPS with its tax benefits can help you reduce your taxable income by quite a bit. However, it shouldn’t be the only reason for you to invest in it. It is a great product to build a corpus for your retirement thanks to its low cost and flexibility. So invest for the right reason.

Category: Tax Saving

5 Most Popular Ways to Save Tax

Don’t Wait To Start Saving, Take Action Today