Tax Planning

Mediclaim gets more tax benefit:  Medical premium deduction under section 80D has been increased from Rs. 15,000 to Rs. 25,000. For senior citizens, it has increased from Rs. 20,000 to Rs. 30,000. For very senior citizens, whose medical insurance is not possible, deduction up to Rs. 30,000 is now allowed on medical expenses incurred.
Sukanya Samriddhi Account introduced u/s 80C: Sukanya Samriddhi Account offers a small deposit investment for the girl children as an initiative under ‘Beti Bachao Beti Padhao’ campaign.  Investment up to Rs. 1,50,000  in this account is tax eligible for deduction u/s 80C. Any interest received is also tax-free. The current interest rate is 9.2% p.a. Minimum deposit of Rs. 1,000 and maximum of Rs. 1,50,000 can be made in a financial year. There is no limit on number of deposits either in a month or in a financial year. Deposits in an account may be made till completion of 14 fourteen years, from the date of opening of the account.  A legal Guardian/Natural Guardian can open account in the name of Girl Child, till she attains the age of ten years. Note: it can be opened for two girl children only. 
 The maturity of account is 21 years from the date of opening of the account or marriage of the girl child, whichever is earlier. For marriage, girl should be of 18 years. The operation of account is not permitted beyond date of marriage.
 One premature withdrawal is allowed on attaining the age of 18 years by girl child only if funds are required for higher education and marriage -- up to 50% of the balance at the credit, at the end of preceding financial year.
Additional deduction of Rs. 50,000 for NPS: The union budget 2015 announced a slew of measures w.r.t. to National Pension System (NPS). First, it has allowed an extra tax deduction of Rs. 50,000 for contribution made towards NPS, under Section 80CCD (1B), which is over and above the deduction available under section 80C. Second, it increased the limit of contribution to pension plans, including NPS, from Rs.1 lakh to Rs.1.50 lakh under section 80CCE(1). This comes to a total of Rs.2 lakh deduction available for NPS.
 With this, a contribution of Rs.2 lakh would result into a tax saving of Rs.20,600, Rs.41,200 and Rs.61,800 for individuals in 10.3%, 20.6% and 30.9% tax brackets, respectively. On the other hand, if you are investing only Rs.50,000 for getting the additional tax benefit under section 80CCD (1B), it will help you save Rs. 5,150, Rs.10,300 and Rs.15,450 for the tax brackets 10.3%, 20.6% and 30.9%, respectively.
 NPS as an investment option not only helps you provide lump sum, but also regular income post retirement since it requires annuitizing the accumulated corpus. Say for example, if you invest Rs. 15,000 per month into NPS for the next 30 years, you will be able to create a total pension wealth of Rs. 5.24 crore (at 12% p.a. return), from which you can withdraw Rs. 3.14 crore on maturity (60%) and get a pension of Rs. 1.22 lakh per month (from buying annuities).

Tax-saving investments: Align with your financial goals           
Investing just to save tax is an ad hoc manner of financial planning. All your investments, including tax-saving ones, must be aligned to your long-term financial goals. Some of your financial goals are: Having an adequate life and health insurance, owning a house, children’s education and marriage, retirement planning, etc. Let’s take a look at the financial goals and the appropriate tax-saving instruments that will help in achieving those goals.

Life insurance: Having an adequate life cover is fundamental to a sound financial plan. It ensures that your family will be able to meet goals and obligations in case of an untoward event. The cover should be sufficient enough to take care of: a) Family expenses till lifetime; b) Liabilities outstanding and c) Family & children goals.
The best way to provide protection is through pure term plan – it gives high coverage at low cost. For example, a Rs. 1 crore term cover for a 30-year-old costs just around Rs 10,000 per annum. With the help of life insurance, you will be able to not only protect the financial needs of your family, but also save taxes under Section 80C.

Health insurance: Given the rising healthcare costs, sudden or serious illness can set one back for years. The cost of key surgeries and medical procedures in many private hospitals is higher than the annual household income of between 60% and 90% of India’s population, according to a report by audit and consulting firm EY. The report estimates average cost of tertiary care procedures including bypass surgery, angioplasty, neurosurgery, oncology radiation and surgery, and renal and liver transplants in the range of Rs.2,00,000 to Rs.4,00,000, which is more than the annual average household income of all Indians. India’s average household income was Rs.1,57,683 in 2012-13, according to a March 2014 CMIE report.
Health insurance protects you from unexpected, high medical costs. Still, majority of Indians are largely uninsured or underinsured. The EY study says that just about 300 million people in India have some form of health insurance. According to WHO, 70% of Indians continue to pay for medical expenses out of the pocket, in comparison to just 30-40% in other Asian countries.
The importance of health insurance being an integral part of your financial plan can only be overstressed. Make sure you have an adequate health insurance throughout life stages. A family of 2 adults and 2 children can get a Rs 4 lakh cover for just around Rs 15,000 per annum. You can also avail tax benefits of up to Rs. 30,000 under Section 80D.

Buying a house: A home loan is the most common source for fulfilling the goal of buying a house. Tax benefits can also be claimed on both the principal and interest components of the home loan. You can avail deduction up to Rs 1.5 lakh per financial year towards principal repayment on home loan under Section 80C. Stamp duty and registration charges are also eligible for deduction under Section 80C. Tax benefit on these can be availed only in the year you make the payment.
For interest payments, you can avail deduction up to Rs 2 lakh per financial year under Section 24. This is for a self-occupied house. However, for the let out property/ properties, there is no such cap. The entire interest paid can be deducted from the income from House Property (Section 23). You can choose any one property as self-occupied. Remaining will be automatically considered as let out property.
Note, you and your spouse (being tax-payers with independent sources of income) can get separate tax deduction benefits with respect to the same home loan. However, it is important that the house and loan is in your joint names.

Children’s education: The cost of education in India is rapidly increasing, including school expenses. For example, school expenses of a single child including tuition fees have risen from Rs. 55,000 in 2005 to Rs.1,25,000 per annum in 2015, reveals a survey by ASSOCHAM. While the annual fees are on average Rs. 65,000 to Rs. 1,25,000 on single child for regular schools, even the pre- schools for those aged 3 to 5 cost, parents  about Rs. 35,000 to Rs. 75,000 a term. Over 70% of parents spend 30-40 per cent of take-home pay on their children education, placing significant burden on their family budget, it adds.
One must start investing early for children’s education goal to give it enough time to grow. Initially, the allocation must be higher towards equities and later, start shifting towards fixed income to reduce the risk. Depending on the time horizon for the goal, you may invest in ELSS, ULIPs, PPF, NSCs, etc. For example: If your child is just 3 years of age and there is about 15 years remaining for her higher studies, investing in an ELSS could be a prudent option. If your child’s education goal is just 5-6 years away, investing in bank deposits or NSCs could be better option. All these investments - ELSS, PPF, ULIPs, NSCs, bank FDs - are deductible under Section 80C.

Retirement planning: The face of retirement is changing. Today, most of us can’t count on what our previous generations could, for their retirement needs. Assured pension, guaranteed returns from government schemes, support from a joint family, and periods of relatively low inflation -- are almost things of the past. Our retirement is going to be very different from that of our parents or grandparents. We would need to fend for ourselves for our retirement needs. Factors such as increasing life spans, rising inflation, preference for nuclear families, absence of pension systems, etc. necessitate early investing for retirement. The earlier you start the greater you can save to create a nest egg for old age. There are various financial products that will not only help you reach your retirement goals but also save taxes in the process.
There are basically two phases for retirement planning - Accumulation phase (accumulating/building the adequate retirement corpus) and Distribution phase (withdrawing from your retirement corpus for regular income). Growth-oriented options such as ELSS, ULIP, NPS etc could be looked upon for accumulation phase / building the retirement corpus. For distribution phase, options such as bank deposits, NSC, SCSS, etc could do well. Investments in all these instruments are deductible under Section 80C subject to a maximum of Rs 1.5 lakh.

Make a judicious choice
You have a wide array of choice of products under section 80C - ranging from term insurance to endowments to ELSS schemes to government sponsored schemes like NSC and post office savings. SouthEastern Financial Team has compiled & Compared the various options to help you pick the right mix.