- Keep track of your salary slips to know your taxable income
- Always preserve bills, receipts, policy copies for tax deduction purposes
- Consider tax planning as part of overall financial plan. Do not isolate it
Tax planning affects your financial wellbeing. To know how to file your returns is almost like a life skill. Have you decided to plan your taxes by your self? Many prefer to assign this task to their tax planning advisors or chartered accounts. However, it is not a rocket science. II If you are looking to do this by yourself, this primer on tax planning will help you to Do-It-Yourself!
Here are some aspects that you need to keep in mind while planning your taxes:
1. Know your income and your returns: First of all, find out your taxable income. Check your salary slip for the tax summary. Calculate your taxable income after making the necessary deductions (under various sections of Income Tax Act 1961) which are liable for returns. Some of the deductions include interest paid on house loan and education loan, premium paid for life and health insurance, house rent allowance, etc.to name a few. Find out Employee’s Provident Fund (EPF) contribution. Often, investors forget this component when calculating their 80C Investment.
2. Start filing your actual bills and receipts: Ensure that you have saved receipt copies of your house rent, invoices for payment of your life and health insurance premium as you are required to submit a proof of the same at the end of the financial year. Also, keep track of the deductible donations, as well as the name and addresses of the beneficiaries for filing purposes.
3. Invest wisely: Often investors tend to invest in some products with a mere objective of tax saving. However, tax planning is just a part of financial planning. Make sure the instrument you have chosen for tax planning, fits into the overall financial plan and identifies with your financial goals. Choose your investment avenue based on returns, safety, and liquidity but ensure that your portfolio is a blend of equities, debt, and insurance. Buy an adequate life insurance cover if you have dependents. The life insurance premium qualifies for a tax deduction of up to Rs 1.5 Lac under Section 80C of the Income Tax Act.
4. Health Insurance: In the wake of the rising hospital costs, buying a health insurance certainly helps. Most people are unaware of the fact that they can claim deductions on premium paid for medical insurance for yourself and your immediate members (spouse and parents) under section 80D. The premium paid qualifies for a tax deduction of up to Rs 25,000 (Rs 50,000 if you are above 60) under Section 80D of the Income Tax Act. You can claim this for your parents too. So, if you parents are below 60, additional Rs 25000 ( Rs 50,000 if your parents are above 60)
5. Stay informed: It is essential to stay up to date with all the laws, rules and regulations related to income and taxes. A sound knowledge of all the legalities and the deductions involved in the process, will help you plan and execute an effective tax plan for yourself.
Planning your taxes could be rewarding because you are in full control of your finances, but at the same time challenging, as you are likely to make mistakes as a beginner. There could be times when you would need to consult a tax expert too, in which case don’t hesitate. But if you are in tune with the given guideposts, you will ace the art of tax planning.