5 Things Your Tax Planner Should Tell You About

You must have heard the famous quote, ‘’A rupee saved is a rupee earned.’’ Therefore, when it comes to tax planning, it is important to minimize your tax liability as much as possible in order to increase your savings. To do this, it is important to have proper guidance from a qualified tax planner.

A good tax planner makes it a priority to do everything possible to minimize your tax liability. At the same time, he tries to get you the best possible combination of tax-saving investments.

tax planning

Here are five basic concepts your tax planner should tell you about.

1.Income heads under the Income Tax Act

The first step in tax calculation is determining the income head under which your annual earnings qualify. In the Indian tax system, income may be classified under the following heads:

  • Income earned from salary
  • Income earned from business and profession
  • Income earned from capital gains
  • Income earned from house property
  • Income earned from other sources

You may have income from one or multiple heads. Gross total income is calculated after adjusting the annual income against any losses incurred in the same or previous year(s). After considering deductions allowed by the Income Tax Act, you would arrive at the net taxable income figure.

2.Income tax slabs

Indian taxpayers including individuals and Hindu Undivided Families (HUFs) are clubbed under different tax slabs depending on the amount of their taxable incomes and age groups. The following tax slabs are applicable to Indian taxpayers up to the age of 60 years.

  • Income up to INR 2.5 lakh is exempt from taxation
  • Income between INR 2.5 lakh– INR 5 lakh: 5%
  • Income between INR 5 lakh–INR 10 lakh: 20%
  • Income exceeding INR 10 lakh – 30%

Similarly, there are tax slabs for senior citizens between 60 and 80 years and over 80 years.
When the taxable income exceeds INR 10 lakh, a surcharge and a cess are levied, which are calculated as a percentage of your tax liability.

3.Tax-saving investments

In order to encourage people to save money and to direct this money to productive endeavors, the government has allowed deductions under section 80C of the Income Tax Act on certain tax-saving investments. You may claim a maximum deduction of INR 1.5 lakh for investments made in schemes such as Public Provident Fund (PPF), National Pension System (NPS), National Saving Certificate (NSC), and Equity-Linked Saving Schemes, popularly known as ELSS funds.

With a large number of investment available options making the right decision may be difficult. Your tax planner may also help you analyze and understand the different options to make an informed decision.

Among the various investment avenues, ELSS is the best mutual fund for tax exemption. These are diversified equity funds with a lock-in period of three years and have a tremendous growth potential. Because a majority of the corpus is invested in equities and related products, you may earn higher inflation-beating returns when you stay invested for the long-term.

4.Taxability of investment income

While making investments, it is important to understand the taxability of the income generated from these. For example, if you invest in stocks, and sell them, the profit (if any) generated is subject to capital gains tax. Additionally, income earned from tax-saving fixed deposits is taxable as per your tax slab.

However, if you are looking for an investment whereby the returns are also tax exempt, your tax planner should discuss all the available options like ELSS funds, PPF, and others with you. Amongst all the EEE (exempt, exempt, exempt) investments, ELSS is a considered to the best option. This is because the investment is exempt from taxation in all three stages – investment, dividends, and maturity proceeds. Compared to other EEE options, ELSS has the shortest lock-in period, which makes it the best mutual fund for tax exemption.

5.Tenure of investments

It is important to note the tenure of the investments you choose to make when it comes to tax planning. If you prefer to maintain liquidity in your portfolio, you should avoid investments like PPF, which have a long lock-in period of 15 years. Your financial planner should help you choose the right investments based on your investment horizon, financial goals, and risk appetite.

Tax planning can be tedious without proper investment guidance. With the Angel Wealth app, tax saving is easier than ever! The app uses a hyper-intelligent ARQ investment engine, which gives customized investment recommendations after analyzing market information across different areas. The ARQ engine processes over a billion data points using advanced machine learning and cognitive technology. The Angel Wealth app gives you fully computerized investment tips to minimize your tax liability and maximize your wealth through this dynamic ARQ investment.

Download the Angel Wealth mobile application and become a smart tax-planner.

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