PLAN YOUR TAX AS PER YOUR AGE AND INCOME

Separate Plan for each Age Group

We cannot avoid paying some Income Tax depending on our income. You should
be aware of the available avenues to reduce the Tax burden. We should let any
opportunity reduce tax go. Tax planning is also a crucial part of economic
planning. It varies from person to person, income level to income level. It is
essential to know which scheme is apt for whom and which one helps the
individuals to go forward.
There are several investment schemes to reduce payment of income tax and there are
several sections in the Income Tax Law to get relief from Income Tax. While selecting
these options, the focus should not just be on the immediate tax relief. A prudent tax
plan should involve a comprehensive outlook of long range savings and investments.
This financial year provides more relief to the tax payer. There is exemption up to 2
lakhs interest payable on the home loans. Exemption under 80CC is up to Rs.1.5 lakhs.
Investment in Public Provident Fund gets a tax exemption up to Rs. 1.5 lakhs. Tax
exemption is also available to different individuals under Sections 80DDB, 80U, 80E,
etc.
Tax savings is an integral part of gross economic plan. Hence, provisions of Section
80C should not be applied mechanically. An individuals tax plan depends on the
financial standing and the long term objectives. Lets see how individuals can arrive at
their tax plan based on their specific conditions.
Early stage of earning (Between 20-30 years)

During this age range, you would have just started your employment and have
long service to render. You are young and can take calculated risk in investment
plans. Your tax plan should be of long range at this stage.

In addition to the statutory deduction of the Employees Provident Fund, you can
contribute more to Public Provident Fund. This gives you immediate tax relief
and also serves as an effective retirement plan.

Since you can take calculated risk at this stage, it is better to invest in Equity
Linked Savings Schemes (ELSS). This is a time-bound cumulative investment
plan and you can get a lump sum at the maturity. This income from interest does
not attract tax.

You can think of LIC policy as a best option for tax relief under Section 80C. Do
not consider this as a dead investment, as it has life coverage and a definite
financial security to the dependent family members in unforeseen calamities.
Since the limit under this Section has been increased to Rs.1.5 lakhs, an LIC
policy would be a best bet.

It may be a good idea to go in for a term policy of ten to twelve times of your
annual income. In addition to this, you may consider investment in ELSS and
Public Provident Fund.

Since you are young, you may think that you would not get into any health
trouble. Remember that healthcare has become a costly proposition these days.
If your employer provides for group health insurance, do join it. In addition, you
may take a policy for you and your dependents for the aspects not covered in the
group insurance because Section 80D provides for a tax relief up to Rs.15,000
for you and your dependent parents. If they are above 60 years, the tax relief is
up to Rs.20,000.

If you have availed loan for higher studies, you can now claim tax exemption to
the extent of the interest paid on the educational loan, under Section 80E.

The Middle Age (Between 30-40 years)

This is an important phase of your life. By this time, you would have settled in life
with children. You have increased responsibilities; yet, you are still in an age
group to be able to take calculated risks. You should still concentrate on long
term plans for your tax saving.

With increase in salary, there will be increased deduction for PF contribution.

This meets your long term tax plan objective and also serves as an effective
retirement plan.

You can claim childrens tuition fee reimbursement under Section 80C.

You can continue the already subscribed LIC policies and review feasibility for
additional policies. This is an important stage for such a wise decision. At this
stage, you can still think of contributing to term policies. Do not commit to high
premiums in the hope of higher tax rebate. Study all the schemes carefully. It is
better to go in for unit-linked policies.

Many employees in our country opt for housing loans in this age range. If you
have already availed this loan, you can claim tax rebate for principal up to 1.5
lakhs under Section 80C. It is advantageous now, because the relief earlier was
only up to Rs.1.00 lakh.

Under Section 24, you can also claim tax rebate up to Rs.2.00 lakhs on interest
paid on the housing loan. It is advantageous for employees in high pay bracket
paying high income tax, to go in for own house at this stage.

Review your group health insurance policy once again and go in for another
health insurance policy, if required.

In addition to the above, you may consider if there is any scope for tax exemption
under Section 80C. If your budget permits, you can think of ELSS related
investments. If you do not want to take risks, you can save in schemes like
Public Provident Fund, or VPF.

Liquidate the liabilities (Between 40-50 years)

At this stage, your income will be higher than earlier and also you will have increased
responsibilities for childrens education and other expenses. You cannot take any risk
with your savings now. This is the time to plan for a secured retired life.

If you have a housing loan, it is time to start its repayment in stages. You can
think of withdrawing investments in other securities and repay the housing loan,
because the interest accrued on these investments will be lower than the interest
charged for the housing loan. It is not prudent to pay high rate of interest locking
your money in low interest yield investments.

By now, you would have exceeded the permissible limit of tax rebate under
Section 80C because of the exemption sought for childrens tuition fee, principal
on housing loan, contribution to PF, etc. You have to think of other schemes for
investment. Contribution to your LIC policies is a must. This is the time of
healthcare requirements. If you have policies in place, it is alright. Otherwise, it
would be wise to go in for health insurance even if at a high premium.

If you still have provision for investments for tax rebate, you can think of ELSS
related investments. If you do not want to take risks, you can save in schemes
like Public Provident Fund, or VPF.

At the Doorstep of Superannuation (between 50-60 years)

This is a phase wherein your income and expenses will be in a higher range and there
is no scope for any risk-taking.

You should concentrate on liquidating high interest-bearing loans like housing

loan, personal loans borrowed from banks, etc. Otherwise, these advances will
cut into your retirement benefits and make post-retired life a challenge.

Since there will be hardly any scope for investments under Section 80C, you may
think of ELSS related investments. If you do not want to take risks, you can save
in schemes like Public Provident Fund, or VPF.

Do not compromise on continuing your LIC and health insurance policies.

Evening of Life (60 years and above)

There is tax exemption up to an income of Rs.3.00 lakhs per annum for retired
employees beyond the age of 60 years.
Reimbursement of medical expenses is permissible to senior citizens under the
following sections:

Section 80D (for payment of medical insurance premium up to Rs l 20,000/-),

under Section 80DDB (for ailment of specified diseases up to Rs.60,000/-)

You can save your retirement benefits in Senior Citizen Savings Scheme (SCSS)
from 1 lakh to 15 lakhs. Interest is payable on quarterly basis @ Rs. 9.2% per
annum.

Financial planning is an ongoing process. It should be reviewed at regular intervals and

required changes made depending on your goals. In case of any doubt, financial
experts should be consulted and remedial steps taken to derive utmost benefit on
income tax rebate.