Are we saving tax and making money?

Last year the government had increased the deduction under section 80C to Rs. 1,50,000/-. This year there has been no change, but an addition has been made in section 80CCD for investments in NPS. Let us look at our options with the changed scenario.

ELSS Funds – By far this is the most rewarding of all investment options. With a lock-in period of just three years and tax free returns with regards to both dividend and capital gains. To get the best returns, invest using the SIP option.

ULIPS – With management charges reduced, this is also a good option, which is given by ELSS funds as well. There are a bit expensive as compared to ELSS with regards to charges. The lock-in period is longer, you need to stay locked-in for minimum of 15 years and premium would need to be paid for 15 years. Don’t go by what the Insurance advisor would say, as you would benefit only if you keep paying the premium for the full term. Another advantage is there are free shifts allowed from debt to equity and vice versa, check the number of free shifts allowed.

PPF – Though the interest rate is 8.7%, this would be changed on a regular basis by the government depending on the interest rate scenario, which is likely to come down. You need to put in a minimum of Rs.500/- per year and there is a lock-in of 15 years.

Sr. Citizens Saving scheme – Interest rate is 9.2%, is ideal for people above 60 years with a lock-in of 5 years. Interest is paid quarterly which is taxable.

NPS – A good option for those looking to gain from the additional Rs.50,000 investment option, in addition to section 80C. The amount would be locked-in till retirement and then you would start getting pension from then. Pension would be taxable. The maximum deduction is limited to 10% of your salary for own contribution, but there is no limit on employers contribution. This is only for Tier I accounts.

Bank FD – Should be invested for 5 years, interest is taxable.

NSC - There are 2 types available 5 years and 10 years. Any investment is eligible for deduction. Interest amount received is taxable and also can be claimed under section 80C as investment, as interest is treated as reinvested.

Pension Plans – These are issued by insurance companies, at the end of the period, you have to buy an annuity, which would be taxable on receipt.

Insurance plans - Any premium paid for insuring your own life or that of your child or spouse is allowed as deduction. You have to ensure that the premium paid does not exceed 10% of the assured amount.

In addition to the above there is a deduction available for Principal repayment of Home Loan and Tuition fees.

If you have a housing loan, interest paid on housing loan to the extend of Rs. 2,50,000/- is allowed as deduction, under income from house property for self-occupied property.

Premium for health insurance is has been increased to Rs. 25,000under section 80D for self and family and Rs. 30,000/- for Sr. Citizens.

Make use of the options given to you and save tax. Tax saved is money earned. Invest right and make money.

Goal planning for people in their 40's

This is the age when you have done with most of your struggling, you are married, have children, have a career (should I say finalized what you think is what you want to do) and a house. Now you want to make the most of your life. Of course, before you start with that, these are the things you need to take care before spending all your money. Children’s education, retirement and health, you could also think of early retirement, second home or start a new business venture. How to achieve all this, meet a financial planner and work with him. At this age, you would have achieved most of what you wanted if not all, but there could be chances that because of your ambitions and added responsibilities, there could be pressure to achieve more.

Is all this bothering you? If yes, you are not alone, all of us go through such situations. In are quest to achieve what we want, we do not usually have an overall plan. We have individual plans, but our financial plan is left to the end or in most cases there is no plan at all. This is the time to consolidate, sit back a bit and have a relook at your financial situation. Your family needs your time, you now start looking at work-life balance. This is easier said than done. You need to take a call and it is now, children would be growing and would soon reach the time for their higher education. Would you like to be caught on the wrong foot? Running around to arrange for finances and retirement would not be far away. Company is taking care of your medical expenses and insurance and you would retire soon. What happens then? Most of the insurance companies do not give insurance at that age or have a lot of restrictions.

You are not getting any younger and illness would definitely start catching up. Exercise, diet do what you want, nature will catch up, so be prepared, take a health insurance now. It is an investment for your old age. Do what is right, don’t go by what others are doing, as everyone’s situation is different. The longer the time horizon for investment, the lesser the amount needed to be kept aside, this will help you enjoy your life and not struggling throughout your life. So what are you thinking about? Start now.