Tax Planning India

Tax planning is an integral component of overall financial planning and budgeting, helping to reduce the net tax liability. Tax planning entails taking maximum advantage of tax exemptions by investing in relevant investment platforms. Another important aspect of tax planning is ensuring that your investments are aligned to your long-term financial goals.

Tax Planning and Savings under Section 80C

Section 80C is the most important provision in the Income Tax Act, 1961 in respect of tax deductions. A tax-payer can save as much as Rs.1,00,000 on tax payments under this section alone. Eligible investment alternatives under section 80C are:

• Public Provident Fund (PPF): Investment in PPF is subject to a minimum and maximum limit, which is Rs.500 and Rs.70,000 respectively. Although, an excellent investment option, before locking funds in a PPF bear in mind that it has a high maturity period of 15 years.
• National Savings Certificate (NSC): Also known as the post office savings scheme, investment in NSC is a good option for people with all levels of income. Besides, the lock-in period for NSC is just six years.
• Equity Linked Savings Schemes (ELSS): This is a form of mutual fund, wherein the entire units are invested exclusively in equity shares. An important benefit of investing in ELSS is the high probability of returns and a short lock-in period of three years. However, bear in mind that since an ELSS is linked to shares, the probability of risk is high.
• Life insurance premium: In comparison to other investment platforms, insurance is the least profitable. Although a life insurance offers peace of mind, it should not be the sole investment option.

Additionally, under section 80C, payments made towards the principal value of a home loan are also eligible to be claimed as deduction.

Selecting the best tax saving investment: A final word
The suitability of an investment option differs from person to person, depending on several factors, such as the desired level of liquidity and risk-return payoff.