Plan well to save money from getting axed by government tax

That season of the year has come when people are busy getting hard to work upon tax planning to save their hard earned money from getting axed from government acts. Many of us work out on our tax savings plan activity in the last 2-3 months of the financial year and few even at the dead end.  And ironically, it is only after we have worked on our plans friends or family members start suggesting plans. But we have to understand where we have locked our money such as whether the returns are lower or risks are higher.

The article discusses what tax planning is and insurance policy as an option to work on tax savings plan are.

Income Tax Act provides certain deductions that an individual may claim and thus reduce the gross total income thereby reducing your tax liability. It comes under section 80C of the Income Tax Act. According to Section 80 C, an amount equal to the investment that you make in certain specified instruments or an expense incurring up to a maximum of Rs 1.5 lakh in a financial year can be claimed for tax savings. Tax savings plan is important part of your financial savings in life. Section 80C of the Income Tax Act, 1961 provides options to save tax by reducing the taxable income by up to Rs. 1.50 Lakh. These solutions are ideal for investors who would like to create wealth and save taxes as well.

It is calculated by assuming a qualifying amount of deduction upto Rs 1.50 lakh as investor falls in the top income tax slab of 30% and includes applicable cess. It is advisable that investors should consult a tax advisor in view of individual nature of tax benefits.

While there are various options available in market for tax savings plan such as mutual funds, PPF, NPS,FDs etc, insurance policies such as life, health, retirement or ULIP are the best ways for tax savings so that you can divert your funds more on pursuing your financial goals.

Life insurance, be it traditional (endowment) or market-linked (ULIP), offers tax benefits to policyholders on the premiums paid. There are various life insurance plans like term plan, endowment plans, ULIPs or Money back plans. The premiums paid towards life insurance are covered under Section 80C of the Income Tax Act up to a maximum of Rs 1.5 lakhs. The earnings on death / maturity are tax-free under Section 10(D).If policy is surrendered/terminated within five years; deductions claimed are added to income and taxed accordingly.

In case of ULIP they are generally taken for around 5 to 10 years and the returns vary depending on the performance of your fund. If your annual premium exceeds 120 per cent of the sum assured on your policy, your deduction will be restricted to 10% of the sum assured. Moreover the amount received on maturity will be