Tips on Tax Planning for all Age Groups!

You’re in your early 20s and starting your professional career. You are probably single and do not have too many financial responsibilities. You are enthusiastic and aspire to travel the world, buy a car and may be even a house. To do so, you must maximize your savings and invest it intelligently. Here are a few investments you can try.

1. Mutual Funds: Given the lesser burden of responsibilities, you might be able to take more risks with your investments. For example, you could invest in mutual funds like the Equity Linked Savings Scheme, which is a tax saving mutual fund. It is a high-risk, high-return product that invests in equity markets.

2. Life Insurance: With life insurance, increases with age that is the later you buy, the higher the premium. A term life insurance plan offers a large life cover at a lower premium. For example Max Life’s new Online Term Plan Plus offers a 28 year old non-smoker a cover of Rs. 1 crore at a monthly premium of just Rs. 563. At the same time, a Unit Linked Insurance Plan (ULIP) that invests in an equity market-linked fund can help you save and invest regularly so that you can build wealth over the long-term.

The premium paid on a life insurance policy is eligible for tax deduction under Section 80C of the Income Tax Act. The returns or proceeds from life insurance policies are also exempted from tax, as per the provisions of Section 10(10D).

In your 30s and 40s, you have a family to look after. Your spouse and children wait for you when you head back home after a day’s work. Milestones like your child’s higher education, wedding, or a second home are your goals. Hence, along with tax benefits, you must look for investments that bring in long-term returns and help establish a secure financial future for your family.

Here are some tax-saving ideas for you:

1. Public Provident Fund (PPF): A PPF offers an interest rate of 7.1% (compounded annually). This is a safe and popular investment tool. While the returns are not very competitive, the invested amount (up to a maximum of Rs. 1.5 lakhs) gets exempt from income tax under Section 80C of the Income Tax Act.

2. Life Insurance: A life insurance policy is crucial at this stage, especially now that you have dependents. It will help them sustain their lifestyle and support their life goals, even if you’re no longer around. It becomes even more necessary if you have loans or liabilities to repay.

In your late 40s and early 50s, you have reached a stage where you have accomplished a lot for yourself. You may even start to think about your retirement and therefore, want to secure a retirement corpus. These are a few tax saving ideas you can try:

1. Retirement Plans: Investing in retirement plans lets you save tax in the present, and helps you prepare for cash flows in the future. Not only does it bring peace of mind, but also safeguards the financial goals of your spouse in your absence. A plan with an increasing monthly income will help you combat rising costs of living and medical care, so that you live a comfortable retired life.

2. National Pension System (NPS): An NPS would be a great choice of tax saving investment tool at this point. A voluntary contribution retirement savings scheme, the NPS is aimed at providing adequate retirement income to every citizen of India. Investing in NPS brings the following tax benefits:

Investments up to Rs. 1.5 lakhs in NPS in a financial year are eligible for tax deduction under Section 80CCD(1), falling under the overall ceiling of Rs. 1.5 lakhs deduction under Section 80C.

Amounts of more than Rs. 1.5 lakhs are eligible for deduction under Section 80CCD(1B), subject to a limit of Rs. 50,000. For employees, contributions by the employer up to 10% of basic salary + dearness allowance are also eligible for deduction under Section 80CCD(2).

While nearing retirement, you probably do not have any dependents and most of your financial responsibilities would have been met. You now aspire to slow down and live a more peaceful life.

1. Retirement Plans: Investing in retirement plans is always a good idea at this life stage. But, remember that your investments at this point should ideally be conservative, while also being tax efficient.

2. Fixed Income Instruments: You can consider investing in fixed income instruments like tax saving FDs as well. These are safe, but they have a lock-in period of 5 years. Now is the time to be more conservative in your investments. Put your money in Fixed Deposits and get guaranteed rate of return as well.

3. Senior Citizen Savings Scheme (SCSS): If you are above 60, opt for the Senior Citizen Savings Scheme (SCSS). A popular and relatively risk-free product, it promises capital protection along with regular interest payout. The amount invested in SCSS is also eligible for tax deduction under Section 80C.

All of these tax saving instruments (except SCSS) can be opted for at any life stage depending on your requirements. Life insurance in particular is indispensable in securing the financial future of your loved ones and providing tax benefits, no matter which stage of life you’re in. Explore a range of Max Life insurance plans to choose the right one. Start by getting a quick quote today.