3 Steps for better Investment and Tax Saving Planning

3 Steps for better life planning for medium class salaried individuals.

Salaried class is most law abiding is the most important class in contributing the progress for the country. The salaried class has everything open for its earnings and the tax is deducted beforehand by the employer, the balance is paid as salary in hand. In terms of security too the salaried class has to do everything for itself be either life insurance, health insurance, medicinal expenses etc. as, the protection received by salaried class by government is near to nil as most of the policies of the government focus on poorest of poor so despite of contributing maximum to country’s progress the middle class is often missed out in most of the benefits provided by the government.

So, this becomes the most important for salaried individuals to focus on tax planning and investments.

This article would discuss further for the priorities of individuals with in specific age groups and marital statuses for the reference to future planning along with tax saving and safe guarding their dependents.

There are 3 steps for individuals to look at their priorities and responsibilities.

Plan for emergencies:

Before saving money, an individual should first plan for emergencies like illnesses, terminal illnesses etc. for himself and his dependents, as they can eat away your hard-saved money in no time if encountered. This too depend on age group of the individual or the status whether he is married of unmarried.

i. If individual is unmarried and in age group 20-30years: If the individual is in this age group and there are no dependents then the probability of having terminal illness is less if he/she is nonsmoker, so he/she should go for a modest plan for personal health insurance, even if he/she is covered by any corporate health insurance, as the personal health insurance premium would be less in this age period and would provide additional benefit in section 80D. An individual in this age group should also get a good term insurance plan as the plans if taken in this age would have less premium, that would sustain for whole policy period.

ii. If individual is married and in age group 20-30years: If the individual is in this age he/she should go for a good plan(at least 10 lakhs) for personal health insurance, even if he/she is covered by any corporate health insurance, as the personal health insurance premium would be less in this age period and would provide additional benefit in section 80D. This also advised to take both term and health insurance early in life as due to bad life style the lifestyle diseases like Diabetes, BP, Thyroid etc. are onset quiet early in age group, and the insurance plan if you have these illnesses would be more costly and would contain less features. The health insurance premium in this age group would be bit more as kids and spouse would also be added to it but it is necessary. As individuals has dependents, he should go for a good term insurance plan with critical illness included in it. If the child in family is added then he/she should upgrade the term plan to more amount of sum assured.

iii. If individual is married and in age group is above 30years: This age group is one of the very important periods for an individual to have himself and his family secured of any emergencies. This is the age group when most of the life style diseases like diabetes, blood pressure etc. can attack and individual, so when these diseases have already struck it becomes very difficult and costly for an individual to take a health plan or term plan. Go for a good health insurance for at least 10 Lacs for yourself or family and a min term insurance of 1 Cr. If you have one kid and 1.5 Cr if you have two kids, however this should be optional as per the income and risk appetite for an individual.

iv. In addition to all these, the individual should plan for any health emergencies for his/her parents if they are dependent on you as parents are more prone to any kind of health emergencies, Many companies give an option for including parents as part of health insurance plans provided by the corporates, then individual should go for it as it would provide then safety for parents as well as tax deduction in Section 80D of income tax act. The corporate health insurance protection is the best plan for parents as most it includes all existing diseases from day 1 and there is no cap for window period like private insurance players do it.

v. If there are no options given by corporate then individual should go to other insurance service providers and take a at least modest plan if the parents are dependents.

Planning for near Future:

After securing himself with investment in health and term insurances, an individual should save for his future, the best option would be to save with a prolonged period of time like 10 years or 15 years, to have a good corpus when an individual kids are grown up and liabilities have started, in India when kids has entered in 9th standard then the real expenses like coaching etc. gets started. As per the individual risk appetite i.e. how much risk he/she can bear in investment one should try to distribute the investments in combination to high risk like ELSS (Equity linked saving scheme) and low risk PPF (Public provident fund). This would provide the benefit under section 80C of income tax act which has a cap of 150000. The normal banks FDs are not a great tool to get a good corpus created for future as they are charged with TDS tax by the government and bank interest too had fallen dramatically in India in recent years.

Plan for Kids:

There are various options available in market today from many insurance providers like LIC, ICICI etc. which provide very good returns along with insurance options in the plans. PPF or ELSS also proved very beneficial in long run if invested wisely taking this the target of kid’s future in mind. Factor all expenses in future taking all the current expenses factoring the inflation in it and plan for a corpus for future, there are various tools in this website which can help you to plan for kids future. For kids’ future the experts recommend for long term investment vehicles which are equity linked and can provide awesome returns in futures.

Plan for retirement:

There are various plans in market which caters the need for retirement benefits, however it depends on the individual to choose from various options available in the market depending upon the risk appetite of the individual. As the planning is long term so individuals can go for long term marked linked plans which can provide wonderful returns in future compared to traditional fixed interest plans.

VPF (Voluntarily provident fund) is also a very good option and provide fixed and safe return to individual for accumulating the corpus for retirement. The employers can help you in this regard and one can contribute the fixed percent from basic income as an amount in VPF.

The NPS (National Pension system) introduces by government of India, is the best vehicle to choose for retirement income, this provide the income tax benefit in various sections like 80CCD1, 80CCD2, 80CCD1b, this would help to save tax along with providing the benefit of future income guarantees. Read more on various sections for NPS sections

Another good future income guarantee plan is APY (Atal pension Yojana). Atal pension yojana provides an income guarantee for individuals from 500 to 5000 per month, individual should get enrolled himself and his spouse in APY as this will guarantee a future income post retirement Age. The monthly amount invested in APY depends on age of the individual and the chart can be found on anther article in this website Link Atal Pension Yojana

The investments for NPS and APY can be combined with to take benefit in section 80CCD(1B), like if you contribute 10000 a year for APY then you can invest 40000 in NPS and get a benefit on 50000 amount which is max benefit in 80CCD(1B).

You can think it like this, if you are in 30% tax slab and you are claiming deduction of 50000(max limit) in Section 80CCD(1B), then you are getting a return of 15000 ie. 30% as tax saving so other return you are getting is over and above it.

At the end I would request users to plan the investments and tax at the same time at the time of investing one should also focus on maximum tax saving by diligently investing on tax saving vehicles. The various section of income tax would be utilized for maximum tax saving, the tool provided in this web portal provides you the insight of your investment along with suggestions on your various investments. Try the Income Tax Calculator.