Income Tax Planning

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A Beginner’s Guide on Income Tax Planning

Key Takeaways

• Tax Planning is crucial as it helps reduce your tax liabilities.
• You can achieve tax efficiency by investing in instruments under Sections 80C, 80 D, 24B, etc.
• Your tax slab depends on your basic salary and income sources.
• You can invest in schemes like ELSS, PPF, EPF, NPS, etc.
• Claim deductions on the Home Loan principal and interest repayments as part of tax planning.

Tax payment is a civic duty that helps foster the development plans of a nation. As an Indian citizen, you have to file your IT returns irrespective of your income and pay taxes if your income exceeds a certain bracket as specified by the government. But did you know that you can reduce your tax outgo significantly and enjoy tax exemptions on various investments with effective tax planning? Consider this article your introductory guide to tax planning and read on.

What is Income Tax Planning?

Tax Planning is the act of devising a financial plan in a way that enables you to reduce your tax outgo significantly. It involves optimally utilising the tax exemption limits and rebates offered by the Government of India under various Sections of the Income Tax Act, 1961. A financial plan that minimises your tax payment while allocating assets in profit-generating and asset building securities is called a tax-efficient plan.

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Tax Planning for Individuals

As a tax-paying Indian citizen, you should be aware of the various sections of the Income Tax Act, 1961 and the tax-savings instruments that fall under it, such as:

Section 80C

Section 80 of the IT Act allows you to claim deductions of up to INR 150,000 in a financial year. It includes a host of instruments in which you can invest and reduce your tax liability. Some of the most common investment instruments eligible for Section 80C tax reductions include Employee Provident Fund, Public Provident Fund, Principal Repayment on Home Loan, National Pension Scheme, Senior Citizens Savings Scheme, etc.

Furthermore, by investing in ELSS Equity Mutual Funds, you can save up to INR 46,800 in tax payment, based on your income tax slab. While equity investments carry market and volatility risks, they generate rapid returns. You must assess your risk profile before making such investments.

Section 80D

One of the primary financial goals you must fulfil during the tax planning process is investing in medical and health insurance. Under Section 80D, you can avail tax exemptions of INR 25,000 to INR 100,000 on paying insurance premiums for self, spouse, children and parents. The tax deduction you get depends on your and your parents’ age.

Section 24 B

You can claim tax exemptions of up to INR 200,000 on the interest repayment component of your Home Loan under Section 24 B. With an investment avenue like a Home Loan, you can fulfil two goals – wealth creation by investing in a growth asset and claiming deductions on principal and interest repayment.

Final Note

Personal Tax Planning has become a lot easier with these various government-approved investment avenues. However, you should be mindful of the investment vehicles you choose. Remember to check your risk appetite before investing in stocks and ELSS mutual funds. Also, check your tax slab and the deductions you are eligible for against the type of investment you choose. Consult a tax planning expert and choose safe investments to create a robust financial portfolio.

Download digibank by DBS on your smartphone, register and open bank account online or even choose any tax-saving options from the menu.

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*Disclaimer: This article is for information only. We recommend you get in touch with your income tax advisor or CA for expert advice.