Tax
Planning
Professional Financial Planning to achieve Tax Efficiency and Reduce Tax Liabilities
A Proper Financial Plan can help you to save your money and achieve Tax Efficiency. This can be achieved with the Tax Saving Instruments under Section 80C such as NSC, Bank FD, PPF, etc.
What is Tax Planning?
The concept of Tax Planning refers to the planning of one’s finances for tax efficiency. Tax Planning means the aim to reduce the tax liabilities and get the benefit of rebates, tax exemptions, etc as much as possible. It also includes planning the business decisions in such a way to avail maximum tax benefits under the tax laws. Tax Planning in India is generally taken up at the beginning of a fiscal year.
Tax Planning in India
The Indian Government has created a few tax-saving options for all the taxpayers in India. The taxpayers can avail themselves of a wide range of deductions and exemptions in the overall tax liability under Section 80C of the Income Tax Act. There are some other sections as well in addition to this for tax credits and exemptions.
Types of Tax Planning
Now that we have covered what Tax Planning is, let’s see what are the types of Tax Planning.
The tax planning done for a year to achieve any specific objectives is called short-range planning. Long-range tax planning is done at the beginning of a fiscal year and will not pay off immediately.
The tax planning done to achieve any specific objectives is called Purposive Planning.
Permissive Tax Planning is carried out in provision with the country’s taxation laws.
Objectives of Tax Planning
- Save Taxes on the Business Decisions
- Comply with the Country’s Legal Obligations
- Reduced Litigation
- Stability in Business
- Helps in Growth of Economy
- Helps to Improve Business Productivity
What is an ELSS Mutual Fund?
The full form of ELSS funds is Equity Linked Savings Scheme wherein a major portion of the investments are made in Equity-related instruments. ELSS funds are also popularly known as Tax saving schemes since the investor can save up to 1.5 Lakh Rupees in a given financial year under section 80C of the Income Tax Act.
What are the Features of an ELSS Mutual Fund?
The Key Features of ELSS Funds are listed below:-
- Exemption of Tax on the invested amount under Section 80C of the Income Tax Act.
- The funds are invested in Equity in a diversified manner.
- ELSS funds are long-term Equity Investments.
- The funds have a 3 year lock-in period with no maximum tenure of investment.
- 80% of the Investment Amount will be funded towards Equity and related instruments.
- ELSS schemes can be either online or offline.
- The investments can be made of as low as 500 rupees a month with no upper limit. However, the Tax Benefit will be available only up to 1.5 Lakhs.
Step by Step guide for investing in ELSS Mutual Funds?
You can easily start investing in ELSS funds with the following steps.
- Determine your Taxable Income & Tax Slab
- Pick an ELSS Fund of your choice
- Pick an Asset Management Company (Intermediary Party)
- Choose whether to go for Lump Sum or SIP
- Redemption of the ELSS Mutual Funds
What are the Advantages of an ELSS Mutual Fund?
The advantages or benefits of investing in ELSS Funds are:-
- Tax Savings
- The Compounding Benefits
- Better Returns
- Safe Investments
- Fewer Taxes on Gains
- Availability of SIP
- Redemption is not compulsory after 3 years
Types of ELSS Mutual Funds
The types of ELSS Funds are-
The Dividend Payout has two types:-
- Dividend Payout: The Investor receives a tax-free dividend
- Dividend Reinvestment: The Dividend will be reinvested
A long-term option where the full value of the investments is realized at the time of redemption.
Reasons You Need to Start Investing in ELSS Funds
The importance of ELSS Funds is profound as they are a good investment option for long-term investors. There are a lot of benefits associated with them. Here are the reasons you need to choose ELSS funds.
- Short Lock-in Period: With a minimum 3-year lock-in period, investors can either withdraw their investments or continue them if they perform well.
- Tax Benefits: Under Section 80C of the Indian Tax Act, an investor can claim up to 1.5 Lakhs worth deduction from the taxable income if the investments are made in ELSS schemes.
- Feature of SIP: ELSS schemes allow you to invest via SIP with an amount as low as 500 rupees a month.
- Wealth Creation: The ELSS investments have a minimum 3-year lock-in period. After the period ends, the investments can be continued if it performs well. This will help the investors to earn better returns over a longer period.
- Learn the Discipline of Savings: New investors can learn to save their earrings for a long time since the ELSS investments have a 3 year lock-in period.
FAQs on Tax Planning (Frequently Asked Questions)
Tax Planning helps the taxpayer to improve savings by minimizing the payable tax.
Yes, you can save tax by investing in ELSS funds. Under Section 80C of Indian Income Tax, you can get the benefit of up to 1.5 lakhs.
Yes, KYC is a one-time exercise required if you wish to start investing.
You can start with 1000 Rupees and go as high as you wish to.
You can save up to 1.5 Lakhs under Section 80C of the Indian Tax Act.
You can save more tax by:-
- Contribute to charity
- Pay Health Insurance Premiums
- Invest in ELSS Mutual Fund Schemes
- Get a deduction on your rent
- Keep some money in a savings account
Depends upon your appetite for market volatility. ELSS gives better returns but tax benefits and investment safety are more in favor of PPF.
A lock-in period allows the investor to get the benefit of capital appreciation from the long-term investment. Since the withdrawal of investments is restricted, the investor can gain maximum benefits.
Through the following steps:-
- We analyze your portfolio
- Guide you towards your goals
- Aid you to select the fund that is right for you
- Provide your details
- Make the payment
Through the following steps:-
- Determine the monthly amount you want to invest
- Select a suitable fund
- Enter your details
- Make the first payment
- Activate the SIP for the upcoming months by the methods recommended by us.
Lump-sum allows you to invest a huge amount at once and SIP allows you to invest small amounts periodically. SIP can be more beneficial since:-
- You can learn the discipline of saving money
- SIP calculates on the basis of compounding interest
- You don’t overpay at a single time
An Equity Fund is a Mutual Fund Schemes wherein the investments are made predominantly in Stock Market.
ELSS funds are diversified equity funds. Meaning that they carry similar risks as equity funds since they both are invested in the stock market.
15 Years is the lock-in period for PPF.
Equity funds are an easy way to invest in the stock market. Equity funds can bring in higher returns subject to market volatility.