Income tax returns (ITR) filing: Save money through this amazing tax planning guide
Income tax returns (ITR) filing is a must for all, but many make mistakes that can easily be avoided. It can save them a lot of money. Here is a guide that offers you tailor-made tax planning process so that you benefit the most.
Income tax returns (ITR) filing: Tax planning holds different meaning for people of different age groups. People just beginning their careers, may sometimes not be so forthcoming in paying taxes since parting away with their hard earned money is not easy. Instead, they would look for ways that can help them save taxes. Similarly, people in their mid- 40s may be having different life goals. So they may have different options like Health Insurance or Term Insurance to save tax.
Tax planning guide for people in their 20s: For people in this age group, who have just started earning, tax planning and saving is not a priority. But that is not a good practice and would not help you in the longer-run. The rule is to start investing as early in your career to have adequate money when you retire. Also, this is the best time to taking risks, investment-wise. It would be wise for people in this age group to have a mix of both equity and debt oriented tax saving schemes. Schemes like ELSS Mutual Funds and ULIPs can be good long-term options for people in this age group for equity-focused investment and can also help them in getting tax deductions under Section 80C. It will also be prudent to invest a small amount at this age in debt-oriented tax schemes like PPF, NPS, etc. to get deductions under Section 80C.
Tax planning guide for people in their30s: Once you enter this age group, you may have got married and have a family to tend to. Your financial objective now must have shifted from earning and saving for yourself to ensuring financial well-being of your family as well. People in this age group should opt for Health Insurance policies for themselves and family and enjoy the deductions under Section 80D for the premium paid for maximum deduction up to Rs 25,000 for non-senior citizens. A life insurance cover would not only help in supporting your family during an emergency, but also get you tax deduction benefits under Section 80C. In this age group, people can get additional tax benefits for tuition fees if they have school going children. If you have bought a home through a loan, then tax deductions can also be availed under Sec 24. The equity-oriented tax saving should be continued in this age group, but should be done through the SIP mode to reduce the risks involved.
Tax planning guide for people in their 40s: By this age, you will be in the middle of your career and your household responsibilities might have increased. Hence, you can continue to avail tax benefits on health and life insurance premium, home loan, tuition fees. You can also shift your focus from tax equity-oriented investment scheme to debt focused tax saving schemes and work towards achieving your desired retirement corpus. Investing in NPS and other pension plans can help you with tax benefits as well as this is also the age where you begin to consolidate.
Tax planning guide for people in their 50s: Once you step into 50s, you should assess your retirement planning to ensure that your financial goals are achieved with your children settling down in their life. You should review your expected retirement corpus and work towards increasing it. You may have some additional funds hand now as your home loan or car loan must have been cleared by now. You can use sections 80 (C), 80 (D), 80 (CCD) etc. to avail tax benefits by investing in low-risk saving instruments like PPF and increasing your health cover along with a timely premium payment.
Once you enter the 60s, then your focus should be on capital protection and ensuring a regular flow of income along with tax saving. This can be achieved by investing in instruments like bank FDs, Senior citizen saving scheme and continue getting tax deduction benefit under Sec 80 (C) and 80 (D).
Tax planning, in short, is done according to different age groups and in line with an individual's financial objectives and risk appetite.
By Adhil Shetty
(Author is CEO BankBazaar)