Tax planning is not a device to reduce tax burden. In fact, it helps savings by investments in government securities. Savings reduce extravagance, and correspondingly inflation. Tax savings are permitted only for investment made in government securities and bonds of priority sectors which ultimately help the nation. Therefore, the savings in tax help the Central and state governments to mobilizes funds by way of investments and as such the government earns much by way of other benefits, by sacrificing small amount of tax. The Supreme Court in one case observed that Tax planning may be legitimate provided it is within the framework of Law. By tax planning, the government is equally benefited.
Savings and investments are interconnected. Before making investments the person has to consider various factors such as:-
Liquidity-when he requires the amount to meet the educational expenses of children,for marriage, house construction or for a secure future after retirement.
Security of the investment.
The return and tax on income on such investments.
This varies from person to person. A person by investing in NSC saves on his tax. However, the interest on the investment is taxable. Again, if the investment is made in PPF, he is not liable to pay the income tax on interest. But the period of NSC is six years whereas in the case of PPF the period of repayment is 5 years. However, a portion can be claimed after 7years. Thus the person who makes the investment has to consider whether he requires the amount after 5 years or he can wait for a longer period.
To make investments there should be savings. A lower income person also wants to save, but his gross income and day-to-day expenses dont leave him anything to save. For example, if he has to save Rs 20 from tax by investmenting in NSC, he has to invest Rs 100. Sometimes considering his financial needs he will be prepared to pay the tax of Rs 20, so that Rs 80 is there for his other needs. Therefore, the capacity of savings is also very relevant. To increase savings one should make investments that give reasonable returns. Again this return becomes a saving if invested. This booklet talks about the deductions available under various head such as salary and house property and also various modes of investments and tax deduction available from the said investments. The rebates, concessions and-liability of tax in this article are with reference to the assessment year 2001-2002 (financial year April 1, 2000 to March 31 2001). The amendments made by the Budget 2001 are also touched upon in brief.
Tax planning should be an important component of your overall financial plan. Careful planning is the key to successfully and legally reducing your tax liability. There are proven strategies for reducing taxes for individuals and families. We proactively recommend them to maximize your after-tax income. We make it a priority to be up-to-date on changes in the tax laws, complexity of the tax code, and new tax regulations. We continually look for ways to minimize your tax liability taking into account all deductions allowed while using modern tax preparation software.
We help you to:-
Reduce taxes on your income so you keep more of what you make;
Reduce taxes on your estate and assets so your family keeps more of what you have made;
Reduce taxes on your investments so you can grow your wealth faster;
Reduce taxes on your retirement income distributions so you can retire in comfort; and
Take advantage of certain investments that are tax exempt and/or tax deferred.
1. What is Life Insurance?
Life insurance is protection against financial loss resulting from insured Individual’s death. In realistic terms, life insurance provides you and your family the financial security and certainty to deal with the aftermath of any unseen unfortunate events.
2. Why should I buy life insurance?
Life Insurance provides you and your family with protection against all the risks involved, moreover providing you an opportunity to grow your investments. It could be viewed as a long-term investment to provide for your child’s future expenses or your expenses, post retirement.
3.Why do I need Insurance?
You need insurance for
Family that is financially dependent on you: If you have a family that is financially dependent on you, then you definitely need to insure yourself. The most common reason to buy life insurance is it provide protection to your family incase of any unforeseen events. The life insurance proceeds can be used to support your family members with the expenses.
Loans or liabilities: It is very important to insure yourself if you have taken a loan or mortgaged your assets. It not only provides peace of mind but also a steady source of income for your family
Compulsory saving-cum-investment: A life insurance policy could be used as a compulsory saving-cum-investment avenue. Proceeds from the insurance policy could be used to fund future expenses such as child’s higher education or retirement funds or even a well-deserved holiday.
Partner in a firm or Self-employed: It is highly needed by people who are partners in a firm or have their own proprietor firms. Life insurance can be a critical component for specialized business applications - such as funding a buy-sell agreement. The proceeds of a life insurance policy could be used to provide cash for the purchase of a deceased owner’s interest in the business or to pay off business liabilities.
Other than the RBI Bonds, insurance products are the only other investment products that guarantee yields over a range of time - from 5 years to 25 years. Insurance companies offer single premium investment products as well as regular investment-cum-insurance products that guarantee high yields over a period.
4. Whom should I insure?
Breadwinner - If you are the breadwinner of the family, you should insure yourself first.
Working spouse - If you have a working spouse who could use an insurance policy, both of you could insure yourselves in a joint-life policy. It could serve as a low-cost policy which covers both of you, and which either of you could use for tax-saving purposes as well.
Children - If you have children you could buy an insurance policy in their name. This would ensure that your children receive a certain sum of money in their needy years of higher education. The major advantage in such a policy is that your child or family receives a guaranteed amount of money at a specified period in life.
This type of a policy helps since the earning parent may not be alive later when the child needs money for higher education and the spouse may not be in a position to provide such a large sum of money. Moreover, a policy of this kind ensures a compulsory saving for the child’s future.
Partner/Key-person in the organization: If you have a working partner in your firm or a key-person(s) in the organization, your firm/organization could buy life insurance for them. Such a policy would insure your firm against any financial loss that would be incurred in the event of your partner/key-person’s death.
5. When should I insure?
The minute you have people dependent on your income, you should insure yourself. The younger the age, the lower is your premium. We believe anybody who is married and has children or plans to have children needs to be insured.
Even if you are single, earning and intending to marry, you should think of buying a policy now, as it costs less now than it will when you marry.
Remember, it is never too late to buy an insurance policy. Even if you are 45, and are not insured, you could choose insurance products that provide benefits to your family and provide income during your retirement period.
6. For how long should I insure?
Ideally, you should insure yourself for as long as you are the critical or crucial breadwinning member of the family.
With the growing nuclear families and the typical Indian sacrificing mothers/wives. It may be prudent to ensure that the working man covers himself for his whole life; to ensure that his wife receives a lump sum upon his death.
7. What are the basic elements of Life Insurance?
The two basic elements to all individuals are
Risk coverage (i.e. Term Insurance)
Savings for future (i.e. Pure Endowment)
8. How much does life insurance cost?
The cost of buying an insurance policy depends on:
• Your age, health and the nature of work you do
• Policy type selected.
• Sum assured.
• Policy term.
• Premium paying term.
• Premium payment frequency.
• Riders (if any) attached to the policy.
9. How do I reduce the cost of buying life insurance?
The cost of a policy could be lowered if you
• Buy insurance at an early age (while the risk is lower)
• Insure yourself for a long period
• Insure yourself for a large sum assured; offer to pay premium annually, thereby receiving discounts
• Select a low cost policy such as a Term product, which offers negligible to minimum returns upon maturity.
Do not buy riders or additional benefits that do not seem to add value to you or are available as other insurance policies at lower prices.
10.What are the various types of insurances?
The insurance sector is classified into Life and Non-life (or General insurance as we know it).
Under Life insurance, an individual’s life is covered i.e., the insured’s nominee receives a certain sum of money if the insured individual dies within a specified time.
Under General Insurance, everything but an individual’s life is covered. Thus, an individual could insure himself for his health, home, automobile, travel, office, shop, and even pets.
11. What type of insurances should I have?
To ensure you are safe, the least you should do is to ensure that you have
- Health insurance
- Life insurance, Accident Insurance