Tax saving features prominently in every individual’s financial portfolio. Everyone wants to minimise their tax liability and therefore look at avenues which give them the best tax advantage. Being your client’s financial advisor, you can also advise your clients about possible ways to save their taxes. If you haven’t already discussed tax savings with your client, it is high time you do the same.
Why tax planning is important?
Most of your clients might already be aware that paying taxes puts a toll on their finances but might not know how and when to plan for it. Tax planning will allow your clients to invest their money into different instruments to reduce their tax liability. Investing in the proper investment tools will not only help them save taxes but also build wealth over a while.
Helping clients with Tax Planning:
The government has laid out various mechanisms with the help of which you can help your clients save taxes. You can either recommend short term tax plans or long term tax plans depending on your client’s financial needs.
Here are some ways in which you can help your clients to save their taxes as much as possible –
- Section 80C to the rescue
Under most probability, your clients would have heard of Section 80C as it is the most famous of them all. Investments under this section will allow your clients to claim deductions up to INR 1.5 lakhs for a financial year. Simply put, your clients can reduce their total taxable income by INR 1.5 lakhs by investing under Section 80C. Common avenues which allow deductions under Section 80C are as follows –
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- Life insurance premiums
- Investment in Equity Linked Savings Scheme
- Five year fixed deposits
- Principle repayment of your home loan
- Tuition fee paid for children (up to a maximum of two children)
- Investment in PPF account
- Investment in EPF account
- Section 80D
You can advise your clients to use Section 80D for additional tax breaks. This section is designed for tax deductions for health insurance premiums paid. Premiums of up to INR 25,000 are allowed as a maximum deduction if the policy is bought for self, spouse and dependent children. An additional deduction of up to INR 25,000 can be claimed if premiums are paid for coverage for dependent parents. The limit increases to INR 50,000 if your clients and/or their dependent parents are senior citizens. Thus, your clients can reduce their tax liability by up to INR 1 lakh through Section 80D deductions.
- Section 80TTA
Section 80TTA is one of the lesser known sections when it comes to income taxes. If your clients earn interest from their savings account, they can claim up to INR 10,000 on the interest earned for a financial year. The deduction is applicable to interests earned from a savings bank, post office account or co-operative banks. However, interests earned from recurring deposits, fixed deposits and interests from corporate bonds is not applicable to this section.
However, for senior citizen, the interest earned on savings accounts and bank fixed deposits are clubbed together and can be claimed under section 80TTB till INR 50,000 per annum.
- Standard Deductions
Recent changes in the interim budget make way for a slightly higher standard deduction of INR 50,000 per financial year. This standard deduction is allowed as a flat deduction from the salary income and is applicable for individuals who receive salary income. The Union Budget of 2018 introduced the concept of standard deduction doing away with medical and travel allowances. Thus, the standard deduction would bring down the net taxable income by INR 50,000, thereby reducing the tax liability of your clients.
- NPS For Additional Tax savings
NPS or National Pension Scheme is another great tool that you can suggest to your clients for tax planning. NPS allows your clients to create a retirement corpus by investing in market-linked funds. They can invest regularly through NPS and create a substantial fund which can be used when they retire. The fund also promises annuity payments creating a source of regular income after retirement.
Thus, if your clients are looking for a good pension scheme for their retirement, NPS might just be what they are looking for. Your clients can benefit from lower taxes under Section 80C as well as Section 80CCD. Under Section 80CCD, they can claim an additional deduction of INR 50,000 in a financial year by investing in NPS schemes.
Tax saving is an important part of financial planning which helps individuals save their tax liability. If your clients are unaware about the various tax planning tools at their disposal you should inform them about their choices and help them reduce their tax liability as much as possible. By helping them plan their taxes, you can suggest the required financial products too which would help your clients reduce their tax liability. These products would not only reduce the tax burden of your clients, it would also boost your sales. So, by helping your clients plan their taxes, you can also increase your business and earn better commissions. A win-win for both, isn’t it?
