We are already in the last week of March 2019, in fact the last week for the financial year 2018-2019.
Tax Planning is the Buzzword everywhere. March is very crucial from Tax point of view.
15th March being the last date for payment of Advance Tax without Interest and 31st March being the last date for payment of Advance Tax with Interest.
Every year a record number Investment in the name of Tax savings is done in March itself.
Not necessarily all assessees are late birds.
There are instances of unplanned / unexpected inflow of money in the form of capital gains, bonus and incentives etc. the exact amount of which are not known to the assesse beforehand.
The assesse has to make a decision- is he willing to pay Tax? or is he willing to reduce his Tax liability ?
Had you been in this situation what would you choose?
I would have definitely started working on how I could reduce the Tax Liability.
Not everyone is well versed with the plethora of Investment options available nor have the time and patience to do so.
Risk appetite also matters. In a country like India, people prefer to play safe.
When it comes on to us – No one likes to take the Road less traveled. Then why take chances! Why not follow the Trend?
This Trend is like 50 years old. If one cannot decide on anything, he would for sure end what the majority is doing. If not anything else they would end up buying a Traditional Insurance policy.
It is one of the most common and most sold product in the name of Tax Savings Investment.
Insurance is also an Investment. Yes it is but may be by the end of this article you would agree, it is not.
Insurance is often confused and seen as an investment.
Insurance and Investment are two different things. Insurance should not be confused with Investment.
Getting an Insurance Cover for 5 lacs with a Traditional Policy for an annual premium of Rs. 25,000 makes less sense when one can get Ten Times the cover (i.e. 50 lacs) at One-Fifth the amount (Rs. 5000) spent above had he purchased a Term Insurance policy. Choice of product also matters.
ALTERNATIVE TO TRADITIONAL INSURANCE
There is another Investment option –PPF (Deduction available u/s 80C)
Offers assured returns on investment, Interest and maturity proceeds are exempt from Tax and the best part of it being, it offers absolute flexibility over Contribution amount and Date of Contribution i.e. you can actually vary your contribution amount in PPF year to year, which means you decide what amount you want to allocate and on what date to allocate- on a single date or on multiple dates as per your funds availability and convenience.
The aggregate amount of investment that can be made in one Year in a PPF account cannot be more than Rs.1.5 Lacs p.a. which actually covers the whole of 80C limit.
Isn’t that amazing!
WHY INSURANCE PRODUCTS ARE STILL SELLING LIKE HOT CAKE
There can be psychological reason attached to it –we tend to follow what others are doing.
Definitely we hate to experiment with ourselves, our own money.
There is yet another reason strong enough– Agents Commission.
|On First Premium||30%-35%||0%|
At the end of the day we end up buying what is displayed /advocated before us. The commission structure completes the story that why Insurance products are selling like hot cake till date.
SOME LESSER KNOWN FACTS on PPF
- A PPF account cannot be attached by a person or entity to pay off any debt or liability. Further, even a court decree cannot make a person liable to pay off his debts using money from his PPF account
- You cannot make more than 12 contributions in one year the aggregate of which cannot exceed 1.50 lacs per annum.
- Interest earned on contribution made before the 5th of the month is always more than Interest on contribution made on or after 5th day of the month. Similarly in case of lump sum annual investment it is advisable to do it before April 5 of every financial year.
- An Individual cannot open more than one PPF account at a time except one in the name of / on behalf of minor.
- After Maturity the subscriber has the option to extend the maturity period of the PPF account in a block of 5 years.
Mr A and Mr B both work in the same organization. Both have identical package and their Tax liability is more of less the same.
Let’s assume their Tax liability comes to Rs 25000 and both decide to invest in Tax Savings Scheme
Mr A chose to buy a Traditional Insurance and Mr B chose to Invest in PPF and also buy a Term Insurance.
|MR A (Regular Insurance Plan)||Mr B (PPF + Term Insurance Plan)|
|Deducction under Incom Tax||25000/-||25000/-|
|Life Coverage||5 Lacs||50 Lacs|
|Contribution Amount||Fixed Premium Amount every year||Flexible|
|Contribution date||Fixed Date||Flexible- Any day of the year|
|Returns||< 8%||8% (changes every quarter)|
|Maturity||5 Lacs + Bonus||5.90 Lacs (variable)|
|In case of Death||5 Lacs + Bonus||Amount Contributed so far along with Interest + 50 Lacs|
|Lock In||15 Years||15 Years|
|Age||Impacts premium amount and sum assured||No impact on contribution amount|
With time their income will rise and so will their Tax liability.
Mr A would have to decide on new Tax Savings option however Mr B would just have to increase his contribution amount in PPF Account.
Similarly in case for some reason their Income drops down Mr B would just have to reduce his contribution amount to PPF Account for that year however it may fall hard on Mr A to continue his investment.
OPEN a PPF ACCOUNT Today- It’s never too late!
The process is similar to opening a Savings account in a Bank.
Thank you for your time. I hope you enjoyed this article.
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See you soon.