Tax Planning For Complete Beginners
How can we start planning and saving on taxes? For starters, we need to calculate our total income that is earned from all sources including salary, property, interest earned on savings bank account, fixed deposits and gifts received. Once we arrive at the final number, we’ll need to exclude the deductibles.
Tax Planning For Complete Beginners
One of the markers of true adulthood is planning your taxes. However, reaching that milestone can be daunting. For a first timer, managing taxes can seem like a mammoth task, but that needn’t be so. Here is what you need to know if you are just starting with your taxes.
Income tax is a tax levied by the government on the income of business entities and individuals under its jurisdiction. Every citizen who is working is liable to file income tax returns wherein they disclose their total income, earned though a salary or other sources.
The law also allows for reductions in tax paid. Hence, it is sensible to plan your taxes in a manner enabling you to make the most of your hard earned money.
So how do we start planning and saving on taxes? For starters, we need to calculate our total income that is earned from all sources including salary, property, interest earned on savings bank account, fixed deposits and gifts received. Once we arrive at the final number, we’ll need to exclude the deductibles.
These deductibles, described below, are your best friends as they allow you to reduce your income on paper through legal ways and thereby reducing the tax you dole out! Also, the more you use these deductibles the higher tax you save.
• Under Section 80C of the Income Tax Act a tax payer can avail certain deductions, thus lowering his total income tax liability .The premium paid for life insurance is one of the exemptions under this section. The tax payer can lower his tax liability by upto INR 1,50,000 by buying life insurance. Whether you are starting out with taxes or have been at it for a while, investing in a life insurance policy is smart. They come in multiple options and offer many benefits such as wealth maximization, life coverage, retirement plans, etc. besides helping save taxes. If you are looking at life insurance as well as a policy that gives you returns, Unit Linked Insurance Plans (ULIPs) would be more useful, as they give investors the benefits of both insurance and investment under a single integrated plan. HDFC Life Click 2 Invest ULIP allows you to not only save on taxes, but also get the advantage of life insurance as well as market-linked returns
• Under Section 80D the tax payer can claim deductions on premium paid for health insurance. It allows tax exemptions upto Rs. 25,000 and Rs 30,000. If you are covered by health insurance, you can claim all premiums to reduce tax liability. If you haven’t yet bought health insurance, do it soon. Consider HDFC Life Click to Protect Health policy to give yourself comprehensive protection and avail of tax benefits.
• According to Section 10(10D) of the Income Tax Act, 1961, any sum received earned from a Life Insurance Policy, including the sum allocated as a bonus on such a policy is exempt from tax. This exemption is available for all life insurance policy payouts, without any upper limit. So you can look forward to that maturity amount without the fear of losing even a penny!
To save on taxes, all you have to do is get interested in making your money work smarter for you! However, filling your taxes is not a one day job. But once get a hang of the basics, you will be entirely capable of handling the April tax file scare!
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