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How can you save tax with a guaranteed savings plan?

dateKnowledge Centre Team dateDecember 06, 2020 views144 Views
How can you save tax with a guaranteed savings plan?

All of us want to fulfil our life goals such as marriage, child's education, or financial security. However, to make them happen for real, you require a structured and systematic plan of action which is possible only by investing in a savings plan. The plan should be flexible in terms of guaranteed returns that aren't subject to capital market idiosyncrasies and provide protection. Also, it should be achievable even in mishappenings. However, the returns you get are most often subject to income tax.

According to the provisions of the Income Tax Act, 1961, the government of India allows multiple tax exemptions and deductions on the guaranteed savings plan. The taxpayer can claim these deductions while filing an Income Tax Return. The deductions are subtracted from the gross income and tax you have to pay is calculated on the net income at the required tax rate. If you are an informed and active tax planner, you can understand how these deductions are calculated and plan your investment plans and resonate those plans to serve the purpose of tax-saving.

What are tax saving plans?

Tax-saving plans are products where the investor claims the benefits for the amount invested according to the tax laws. As per the section 80C and 80D of the Indian Income Tax Act, anyone can claim deduction on the premium payment made or the investment they have done. These investments consist of funds such as Life Insurance Plans, Equity Linked Saving Scheme, Bonds, Public Provident Funds, and Fixed Deposits. For reducing the burden of tax of taxpayers of India, the laws allow several ways to save tax. The most popular ways are making tax saving investments and claiming the deductions.

Why is investing in a Tax Saving plan beneficial?

Everyone in the world works hard to earn money. Irrespective of our profession, we need money to have the desired livelihood. Our desires are shattered when we pay a huge amount of tax from our income. If the income of a person exceeds a saturation amount, he/she is required to pay taxes. The only solution to this problem is Tax planning. Tax planning will help you to reduce the burden of taxes and increase your saving at the same time. There are various financial instruments that help out others in saving their tax. A good Tax Saving Investment not only saves your taxes but also provides safety, return and liquidity. An exemplary financial institution will offer you beneficial advice, but at the same time, it will reap benefits in the form of satisfactory return and the flexibility to draw out funds.

How will the Income Tax act of 1961 help you to save tax?

Many of us are aware of the fact that the Income Tax act of 1961 helps us to save taxes in multiple ways. Here are some of the ways:

The sections 80C, 80CCC, and 80CCD(1) allow every individual a deduction up to Rs 1,50,000 (which was 1 lakh till FY 2014-15) in a fiscal year. These sections allow you to invest in a wide range of investment options, starting from simple life insurance to hybrid ULIP, even pension plans, among others. You can easily save money by investing in any of these financial instruments.

You can claim a deduction of interest paid on a home loan if it is yet to be repaid. This can be availed under Section 24 of the Income Tax act of 1961.

Section 80E helps you out to deduct the interest paid on your education loan to an extent. Under Section 80G, you can deduct taxes on the amounts which you paid as a donation to charities, social organisations, relief funds, etc.

The idea of the tax deduction is straightforward. You are exempted from paying taxes where your money is donated for a good cause, or you are investing it for your future.

How is tax calculated?

The calculation of tax is done on your entire net income. According to the rule, the total gross income is to be taken into consideration, and then all the deductions or exemptions are deducted out of it, and thus the remaining amount is your own net income. The net income is then calculated based on the income tax slab that is specified in the yearly Union Budget.

Since we have already talked about how to save tax by investing in guaranteed savings plans, here are some of the options:

  • UPIL - Unit Linked Insurance Plan
  • ELSS - Equity Linked Savings Scheme
  • NPS - National Pension Scheme
  • SSY - Sukanya Samridhi Yojana
  • NSC - National Savings Certificate
  • SCSS - Senior Citizen Saving Scheme
  • 5 Year Bank Fixed Deposit
  • Insurance
  • Pension Plans

Income Tax Savings for young unmarried taxpayers

As it is important to start saving from your early 20s and early 30s, it is equally essential to save your taxes for maximum possible savings. There are various tax saving options that can benefit young taxpayers. Here are a few of them:

  • You can opt Term Insurance as it will cover a sum equal to 15 to 20 times your annual income. It will not only save your tax but will also secure the future of your dear ones.
  • You can always go for the Public Provident Fund(PPF), it provides triple exemption benefits(EEE).
  • Additional taxes can always be saved by investing a part of your gross income in ULIP(Unit Linked Insurance Plans) or ELSS(Equity Linked Savings Schemes).
  • Investing in house properties offers you an opportunity to save additional taxes on interest amount up to Rs. 2 lakh per annum.
  • You can save up to Rs. 50,000 or even more if you invest in a National Pension Scheme.
  • Rs. 1 lakh can be saved via Health Insurance cover for your family under Section 80D of Income Tax Act of 1961.

Smart Income Tax Saving for Single Income Couple

  • If you are married and have a child with only one of the partners earning, your investment options must change as per your financial goals and family requirements. To save tax with these goal-specific instruments is not difficult. Here are a few ways:
  • Under Section 80C, you can save up to ₹1.5 lakh by purchasing term insurance which will also protect the future of your loved ones.
  • Invest in a Public Provident Fund. It is one of the best options that provide EEE pr triple tax exemption benefits.
  • By allocating some part of your annual income to market-linked options such as Equity Linked Savings Schemes (ELSS) or Unit Linked Insurance Plans, you can save taxes.
  • You can invest in pension funds such as a National Pension Scheme if you want to save ₹50,000 or more.
  • Under 80C, you can also claim a deduction for your child's academic fee.
  • For additional tax savings on interest money up to ₹2 lakh, you can invest in house property.
  • Under Section 80E, you can use an education loan to sponsor your child's higher education. It will deduct the rate of interest.

Smart Income Tax Saving for Double Income Couples

  • If you happen to be married and both of the partners are earning, with right investments, you can jointly claim deductions. Here are a few ways-
  • Under 80C, you can save up to ₹3 lakh through investments in savings plans such as term insurance plans.
  • Investment in a Public Provident Fund, which is instrumental in providing EEE or triple exemption benefits.
  • Allocation of a part of your annual income to market linked investment options such as Unit Linked Insurance Plans or Equity Linked Savings Schemes (ELSS).
  • Investments in pension funds such as a National Pension Scheme in order to save Rs. 50,000 or more.

Tax Saving for Retired Individuals

It is important to shift focus towards making sure of financial stability and maximising savings when the retirement is near. If you don't have a fixed income source, it is the savings that help in gaining financial independence after your retirement. However, it becomes difficult with a tax burden. Here are a few ways you can get the tax benefits.

  • Invest in Savings Plans such as annuity schemes that not only offer regular income but also help save you tax, such as the Senior Citizen Saving Scheme.
  • Investment in special annuity products by insurance companies.
  • Investing in retirement fund creation such as Unit Linked insurance helps you can get tax free proceeds on the maturity under article 80C.

Tax Saving for Family Business Owners

If you have a family run business or enterprises, income tax on their revenues is a liability which can be a significant amount. Thus, you must opt for the benefit of tax exemptions and deductions to lower the tax liability as a company. Here are a few ways:

  • You can make a HUF for reducing the total overall tax outgo of the company or enterprise.
  • If you're investing in a medical or health savings plan of premiums up to ₹25,000, you can claim for a tax deduction under section 80D.
  • Donation of money also offers you tax exemption.

Maximum Tax Savings you can avail

Deductions Max Amount in ₹
Standard Deduction 50,000
Section 80D 150,000
Section 80C 25,000
Section 80CCD(1B) NPS 50,000
Section 24(b) 200,000
Total 4,75,000

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Frequently Asked Questions

What is saving plan?

A savings plan is likely to be different for everyone depending on the financial goal, risk profile, returns, and investment horizon. If you are young and want to save for your retirement, ULIPs like Invest 4G or Titanium Plus plan would be the best option. You are likely to create a large corpus by your retirement through market-linked returns if you invest in this savings plan. If capital protection is your aim, then traditional insurance plans such as Guaranteed Money Saving Plan should be suitable for you.

Who should invest in a Savings Plan?

If you are looking for a guaranteed income plan, then saving plans should be on your list of investments that you are planning to make. Savings plan require you to invest a pre-decided amount on a regular basis. People with a regular stream of income who require a lump-sum amount after a period should opt for a savings plan. Working professionals, self-employed people and businessmen should consider a savings plan to meet their long-term financial obligations. Saving plans are also ideal for people who are risk-averse and want to accumulate funds through relatively safer mediums. These saving plans inculcate financial discipline in policyholders which make them crucial for every portfolio.

How much money should you put in savings each month?

The amount that should be invested in a savings plan each month depends on the income, existing financial obligations and the long-term financial goal. If you have a steady income, you should save at least 20% of your monthly income. It is not necessary to invest your entire money into a savings scheme as investments should be diversified. Ideally, you should aim to have a financial buffer of over 10 times of your annual income. Choose an income plan based on your financial circumstances to stay afloat.

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What is the difference between saving and investing?

Saving is the money that you keep aside for emergencies or for buying any big-ticket item. Investing means growing or multiplying the wealth that you have by buying savings plan, or any other assets. Buying a savings plan will help you in achieving your investment goals such as retirement, your child’s higher education or marriage, or for buying a new house.

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The Invest 4G plan with its multiple investment options and various portfolio management strategies for capital protection is an ideal saving plan for retirement. Also, Guaranteed Income4Life is also another savings plan that you can consider for building your retirement corpus as it acts as a guaranteed income plan that will provide you maturity benefits to manage your post-retirement expenses.

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Smart Goals Plan is a savings plan with its unique features such as modification of the sum assured partial withdrawal and fund switch can help you plan for your long-term financial goals. Canara HSBC Oriental Bank of Commerce Life Insurance offers a wide variety of saving plans that you can invest in as per your risk appetite and investment goal.

Which savings plan is suitable for girl child?

The Future Smart unit-linked plan from Canara HSBC Oriental Bank of Commerce Life Insurance is the ideal savings plan for the girl child. Monthly Income Advantage Plans are also a good option if you are planning to invest in a savings plan for your girl child.

Where should I invest my money?

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What is a monthly income advantage plan?

A monthly income advantage plan ensures that you lead a stress-free life with your loved ones as it provides a life cover along with giving you guaranteed monthly income. In short, it is a life insurance and income plan that will financially secure commitments made to your loved ones. Canara HSBC Oriental Bank of Commerce Life Insurance Guaranteed Income Advantage Plan is a monthly income advantage plan that provides life cover for the entire term while you pay premium only for a limited period.

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What is a good age to start saving money?

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Should you use a savings plan for retirement planning?

Yes. Retirement planning is one of the most important financial decisions of our lives. The best saving plan offers a host of features that may help you build your retirement corpus. Some of the saving plans like Guaranteed Income4Life offer guaranteed returns at policy maturity. Such returns can act as a regular income stream even after your retirement to help you stay financially stable.

Are saving plans beneficial for managing unexpected expenses?

Yes. Best saving plans in India offer partial withdrawal system that can be utilized during your rainy days. Being financially prepared to tackle such odds will help you manage any unforeseen expenses in a smooth manner. Buy a monthly income advantage plan that will generate a steady source of income for you to take care of both long-term and short-term financial goals.

How to save tax by using savings plan?

Saving plans are known for helping us achieve our financial goals. Best saving plans allow you to grow your wealth while providing life cover. Saving and investment plans are also beneficial for tax planning. Premiums of savings cum protection plans come with tax benefit under Section 80C of the Income Tax Act. Moreover, proceeds received upon the death of the policyholder or upon the maturity of the policy are tax free under Section 10 10(D).

What is the right age to start saving money?

When you plan to invest in an income plan, it always pays well to start early. The earlier you start investing in a savings plan, the better. When you start investing early, the appreciation in capital is significant. Even a small amount invested in the best saving scheme for a long time can give substantial returns due to compounding. Buy the best savings plan as soon as you start earning to achieve all your milestones on time.

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How a savings plan can help in building your child’s education fund?

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