Q1. I am a salaried individual. How can I increase my home payment by making a proper investment statement?
If you are a salaried individual, your employer would have already received the investment statement request form. The deadline to submit that information is around the corner.
This is an important piece of paperwork that is completed at the beginning of each financial year. Make no mistake, because this could cost you the whole year. Your monthly take-home pay depends on what you declare.
The tax deducted at source (TDS) from your salary is calculated based on the tax-deductible investments you plan to make during the financial year. This statement is to give your employer an accurate estimate of your annual income and savings plan. Based on this, your annual tax liability is calculated.
Employees often take this for granted and do not make accurate statements. They declare excessive tax saving schemes and may end up paying huge tax charges (like TDS) at the end of the year when they cannot provide proof of the declared investments. Or you declare less than you can and after planning you end up with higher TDS, take-home pay deduction and a long wait of a year to get tax refund.
As financial advisors, we encourage you to always report the correct amount. This requires some careful planning and calculation. Here’s what you can do:
Calculate your total annual income.
This is easy for those whose income comes only from a salary from an employer. However, many of them have high income from other sources: rent, payment for freelance work, etc. Don’t forget to include your income from such sources. If you’re expecting a raise, consider the increased number in your account. This is important as everything ultimately adds up to the total tax liability. You can choose not to include income for which TDS is automatically deducted, such as interest income.
Access to tax revenue
Once you arrive at your total annual income, start deducting deductions like your EPF contribution, HRA (if you stay in a rented accommodation), allowances and deductions like travel allowance, medical expenses, conveyance and telephone charges. Income. Your taxable income remains.
Now, bring in the tax-efficient investments you’ve been making regularly and will continue this year. This may include your PPF contribution, children’s education payments, insurance policy payments, home loan payments, ELSS SIPs, etc. The number you just arrived at is your taxable income.
Section 80C and above
Most of the investments mentioned above fall under section 80C and can add up quickly. ₹1,50,000/- limit available under that section. However, you may still need to invest some to get out of the tax net. See more ₹50,000/- deduction is available under section 80CCD (1B) for NPS scheme contribution.
as long as ₹5,000 for preventive health check-ups and medical expenses up to ₹50,000 for uninsured parents above 60 years of age, also eligible for deduction under Section 80D.
If you’re doing all this, you’re off to a good start. However, there are more options to reduce your tax liability and increase your home payment. Talk to your financial advisor to help you plan your investments to minimize taxes and maximize returns.
What is life insurance? What are the benefits?
Life insurance guarantees payment of specified death benefit to the beneficiaries if the insured person dies within the specified period of time in the policy. When you have a life insurance policy, you pay monthly premiums for a fixed term (typically between 10 and 30 years). If you die within that period, the cash benefit will be paid to your family or others named as beneficiaries of the plan.
A term life policy offers many benefits.
Term life insurance is pure life insurance. If you go prematurely, it will cost your users – that’s it. It does not come with an investment component and is easy to manage. You will be covered for the policy term as long as you pay the premiums regularly. When the policy expires, you must purchase a new policy or go without insurance coverage.
Since term insurance offers protection for a limited number of years, it costs less than a whole life plan. Your premium will be lower because if you do not receive anything within the stipulated time frame, your policy will expire and the insurance company will not have to pay the benefits. Whole life policies pay as you go, so those premiums are higher.
With term life insurance, you can choose the term length and coverage amount. You can also purchase multiple, different life policies to cover different goals. For example, you might have a 30-year policy for your growing family, but only a 10-year policy to protect your business investment. You have to pay a surrender charge when you cancel a whole life plan, but this does not apply to term life plans.
Once you make an agreement with the insurance company and purchase a term policy, your premium cannot be waived due to illness or other life circumstances. The premium amount is guaranteed to remain the same throughout the policy period.
When families are just starting out, life can be stressful financially. Life insurance ensures that the most important thing for young families is that they are protected at an affordable cost. They don’t need to make financial decisions that will bind them for the rest of their lives. As long as the annual premiums are paid, the policy will last for a period. As life circumstances change, you can pick up a new protector—perhaps opting for an additional policy.
There are different types of word plans. Before choosing the right policy for you, it is important to assess your current life goals. Your financial advisor will be your best guide in making this choice.
Q 2. I am investing regularly as per my financial goals. I want to know if paying attention to tax planning is still important to me.
Tax planning involves planning your financial activities in a way that maximizes your tax benefits using all the relevant provisions of the tax laws. Tap each exemption, deduction, discount and relief to reduce your tax liability. Please note that this is legal and should not be confused with illegal and unethical tax avoidance.
Reduce tax liability
The main purpose of tax planning is to reduce tax liability by understanding and using the provisions of tax laws in a legal manner. This will result in a larger share of the beneficiary’s after-tax income.
Since proper tax planning complies with the provisions of the law, it avoids or at least minimizes any disputes or disputes related to tax compliance.
Tax planning is a measure of one’s knowledge of tax laws. With the right tax planning, cash flow maximizes one’s investments.
Do your part for the country
Like each of us, the country needs income and savings to grow and prosper. Hardworking taxpayers like you make this possible. The investment options you choose to save tax will allow the economy to thrive. When the economy prospers, we all prosper, including those who don’t have enough income to pay taxes. In other words, your efforts to plan and pay taxes contribute not only to your development but also to the economic stability of the entire country.
Q3. My friends tell me that paying off the home loan in advance will help me save more. it’s true? If so, what should I consider before down payment?
Most of us need a home loan at some point in our lives. After taking care of the documents and meeting the requirements of the lender, getting a home loan is easy. Paying for months and years is a different matter altogether.
You can repay the loan in two ways. Continue to pay the equal monthly installment (EMI), which includes the interest and principal, throughout the loan period.
Or, when you have enough money to save after meeting your needs and providing for emergencies, pay off the loan early. This is the option you are considering right now.
Let’s discuss what you should keep in mind before prepaying your home loan.
When you make a prepayment, the lender is depriving you of a portion of the income you can earn in the form of interest for the remainder of the term. Therefore, some lenders specify a down payment fee when availing the loan. Also, if you take the loan with a floating interest rate (as opposed to a fixed rate), you are less likely to pay prepayment charges.
Make sure you are clear about this when taking the loan. When deciding on a down payment, remember to include the down payment fees when calculating the total cost. How does that sum compare to the total you would have paid over the life of the loan?
Down payment or investment?
After meeting your expenses and emergency provisions, you decide to pay upfront because you have enough money. If you invest this excess amount, consider your return. If that investment is likely to yield a higher return than the down payment, then choose the investment and keep the loan going. If advance payment is more profitable then go for it.
Assess market conditions
If current economic conditions and forecasted trends indicate an increase in interest rates, you may want to get rid of the debt immediately. On the other hand, if the conditions are buoyant, you may get a better yield by investing the profit and letting the loan continue. Seek the advice of an experienced financial advisor before taking the call.
You should only consider a down payment if you have enough spare cash or a permanent increase in your income. Otherwise, the down payment can put you in financial stress for a long time.
Check the effect of prepayment on your tax liability. Does the tax exemption on the interest portion of the loan work in your favor in the long run? If yes, do not prepay.
So there are many things that you need to consider before you decide to take out a home loan. It is easy to be emotional and make an unwise choice in this matter. Let your financial advisor help you make realistic decisions based on your financial situation and life goals.
Q 4. I am a financially independent father of two. I have a diversified portfolio, mostly stocks—stocks and mutual funds. How should I plan for my retirement now?
Retirement is the beginning of a new journey, something to look forward to and preparation for. This is the perfect stage to pause and take stock.
Both your children are financially independent. By investing in various asset classes, you take care of your family’s financial security in advance. However, it’s important to remember that your passions and goals don’t retire when you do. You still need to generate enough income from your portfolio to maintain your lifestyle without exposing yourself to additional risks.
Now is the perfect time to engage a financial advisor to professionally evaluate your portfolio. The advisor first learns about your post-retirement goals and restructures your portfolio to eliminate risk and reduce your tax burden. At this stage, it’s best to rebuild your portfolio by choosing a more balanced mix of fixed income and market-linked investments.
Note: This story is for informational purposes. Please contact a financial advisor for detailed solutions to your queries.
Investors can invest in LSS mutual funds to save income tax.
First published: December 20, 2022, 01:58 pm IST