Moneycontrol
Last Updated : Mar 05, 2018 09:42 AM IST | Source: Moneycontrol.com

Puzzled about when to start tax planning? Here's a ready reckoner

People of different age groups have different financial objectives while their risk appetite and return expectations vary significantly.

Kill that procrastination As the famous adage goes, “Time is money” and procrastinating in money matters is the most damaging toward profitability. It means that one would not let the power of compound interest work in our favour. Also, starting early allows one to take corrective action wherever required. To keep it simple —make a plan and start walking towards the goal of financial freedom.
Kill that procrastination As the famous adage goes, “Time is money” and procrastinating in money matters is the most damaging toward profitability. It means that one would not let the power of compound interest work in our favour. Also, starting early allows one to take corrective action wherever required. To keep it simple —make a plan and start walking towards the goal of financial freedom.

Adhil Shetty

While tax planning is equally important for all age groups, the selection of appropriate tax saving instrument is equally crucial for particular age groups. For example, a person who has just started his or her career would look for tax saving instruments with a higher return and may not get distracted because of its long-term nature; whereas, a senior citizen tax payer would be more interested in a tax saving style which has a short lock in period and even a moderate return would be acceptable to him.

People of different age groups have different financial objectives while their risk appetite and return expectations vary significantly. Tax planning therefore also needs to be adjusted according to the age of the person. So, let’s check out some important tax planning tips for different age groups.

Tax planning for people in 20 to 30 age group

During the beginning of one’s career is the best time to take some risks as well as leverage on the financial position to maximise returns. Investment in equity related tax saving instrument requires patience and a long-term perspective. So, people who are in the 20 to 30 age group should focus on investing in equity-oriented tax saving schemes such as mutual fund-ELSS and ULIP. To diversify the nature of tax saving investment it is important to put a small portion of fund in debt-oriented tax saving schemes such as PPF, NPS etc.

Tax planning for people in 30 to 40 age group

Once you step in the 30s age group, then your family responsibilities increase. Most people get married around the age of 30 and opt for parenthood within the next five-eight years. So, focus should be to ensure financial security for the family hence people should buy health policy for self and family and also claim tax deduction benefit under Sec 80 (D) to the extent of premium paid (max deduction up to Rs 25000 for non-senior citizen). Also, appropriate life insurance cover should be taken to ensure financial support to the family and mitigate contingency related risks. Insurance premium for life policy allows tax deduction benefits under Sec 80 (C). In the 30s, people may get additional tax deduction benefits for tuition fees paid for the children. If one opts for home loan, tax benefits under Sec 24 and Sec 80 (C) can further enhance saving.

In the 30s, people have moderately high-risk appetite, therefore equity-oriented tax saving could be continued, however focus should be to invest through SIP mode.

Tax planning for people in 40 to 50 age group

By the age of 40 you tend to consolidate your career. You can continue to enjoy tax benefits for tuition fees, health and life insurance premiums and deduction benefits against home loan. This should also be the time to gradually start shifting your tax saving investment focus from equity-oriented schemes to debt-oriented ones to ensure the desired retirement corpus without much risks. You can invest in NPS and other pension plans to get the tax deduction benefit. If your children require education loan for higher studies, then you can use the interest paid against such loan to get tax deduction under Sec 80 (E).

Tax planning for people in 50 to 60 age group

This is the time to seriously review your retirement plans. While in your 50’s, you’ll see your children complete their education, perhaps getting into their preferred profession and beginning to take their own financial decisions, reducing in effect your responsibilities. This decade should be devoted to reviewing your expected retirement corpus and if required, increasing the investment amounts. By now your home loan would also be nearing an end. This is the age to avoid taking financial risks and instead consolidating the retirement corpus such as PPF or pension plans. You can increase the health insurance cover at this age if you think you may need higher cover in the next 10 to 20 years as after crossing the age of 60, you may not be able to this.

Post 60 years age

In your 60s, you’ll get the lump sum fund which you would have planned for your retirement. Your focus should be protecting your capital corpus while getting a regular income when planning for tax saving investment. You can invest the funds under Senior citizen savings scheme or Bank FDs and keep some liquidity in high interest paying savings account. Continue getting tax deduction benefits under Sec 80 (C) and 80 (D).

So, be it any age group your tax saving plans must be in sync with your financial goal. You must take into account possible changes in tax structure by the government and keep making necessary adjustments for a long term perspective.

(The writer is CEO of Bankbazaar.com)
First Published on Mar 5, 2018 09:42 am
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