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17 Jun 2019, Edition - 1434, Monday

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Business

Tax Planning vs Tax Saving

Sankar Venkatraman

“All men make mistakes, but only wise men learn from their mistakes.” – Sir Winston Churchill.

The above proverb is very much relevant to our daily lives – particularly in handling fi¬nance.

The famous author John C. Maxwell also said: “A man must be big enough to admit his mistakes, smart enough to pro¬fit from them, and strong enough to correct them.” Alas many conveniently forget this, which often leads to failure in meeting goals.

While undertaking their tax planning exercise too, many individuals tend to repeat the same mistake of waiting until the eleventh hour. As the fi¬nancial year approaches the end, we all start feeling the heat and realize that now we have to invest in order to save tax. But, have you ever wondered whether it is the prudent way for tax planning?

Unlike “tax saving” which is generally done through investments in tax saving instruments / products, under “tax planning” we take into consideration one’s larger fi¬nancial plan after accounting for one’s age, fi¬nancial goals, ability to take risk and investment horizon (including nearness to fi¬nancial goals).

By adapting such a method of “tax planning”, you not only ensure long-term wealth creation but also in meeting your financial goals. Hence, please remember to commence your “tax planning” exercise well in advance by complementing it with your overall financial planning exercise.

For most of us it is limited to only one source of income or two sources in year and it makes a lot of sense to plan our finances – at the beginning of the financial year and invest – which will help in building our wealth and reaching the set financial goals.

Savings under 80C

Broadly there are 4 set of products under Sec 80c which has a maximum investment limit of 1.5 lacs:

•Fixed return products – FD, Post office products, Sukanya Samriddhi Yojana

oEducation funding for your female child, Pension payment in retirement

•Variable or market related return oriented products – ELSS, pension products & ULIP

oGoals like education, marriage and others

•Life Insurance – Term and investment oriented

oLife insurance oriented investment products are very inefficient in meeting your goals.

oPlease consider term insurance only to protect your family in your absence

•Others – Housing loan principal, Tuition fees paid

Under Sec 80 CCD (1B)

•Investment in NPS own or employee’s contribution is eligible for another 50000.

oNPS may fund your retirement goal partially or fully.

Consider all your financial goals – short and long term before making investments in the above instruments in a planned and phased manner.

Happy tax planning and wealth creation !

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