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Budget 2017 - How To Use The Rs 12,500 Tax Savings

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March 08, 2017
  • If there is one figure related to the Budget 2017 that many people have on the top of their minds, it is Rs 12,500. This is the tax saving thanks to the Budget proposal to reduce income tax rate from 10% to 5% for taxable income in the income bracket of Rs 2.5-5.0 lakh.
  • While everyone will welcome any tax savings, this new tax savings might be of particular significance for people in the highest 30% tax slab. This is so because it is people in this income group that manage to save more. This is thanks to their higher income and wherewithal to deploy their savings better for future needs.
  • For many, the annual tax savings of Rs 12,500 may not appear to be significant. But it is amazing how even small investments can achieve over long periods of time. So, if your taxable income in the financial year 2017-18 is in the Rs 5.0-50 lakh bracket, this Rs 12,500 of tax savings could make a difference to your future. Just read on.
  • Every penny saved, counts Long term life goals like children’s higher education and your retirement need serious amount of savings. Remember, the costs are constantly going up thanks to inflation . You will need much more to meet the costs in the future. To do this, you will need to save regularly and invest the money. One smart way of making the most of the Rs 12,500 tax saving is to use it while investing in an unit linked insurance plan (Ulip). But why an Ulip, you might ask?
  • Deploy additional tax savings in Ulips The great thing about Ulip is that it not only provide life insurance but also help you invest. Life insurance coverage helps your family by providing financial protection in the event of your untimely absence. The money from life insurance coverage helps the family meet regular expenses and in many cases, large future expenses like child’s higher education.
  • Ulips also help you invest in equities, which typically provide high growth in the long term i.e. 8-10 years, or more. This is great for an individual investor who may not have the knowledge or wherewithal to gain from the growth that emanates from equities. Further, the high growth helps you stay far ahead of inflation, a critical requirement for meeting major future needs. The icing on the cake comes from tax deductions for premiums upto Rs 1.5 lakh a year under Section 80C and tax-free maturity proceeds under Section 10(10)D.
  • At this juncture, the question arises as to how much difference can Rs 12,500 make if invested in equities? Past experience, though not a guarantee of future results can provide some clues. If Rs 12,500 had been invested in Sensex in the year end of 2001, it would grown to Rs 1.02 lakh by the year end 2016. Since, the Budget 2017 tax saving amount is expected to remain in the future, you can visualise the possible impact on future savings made by your annual Ulip premiums.
  • So, if you haven’t made a provision for protecting your family with adequate life insurance, or your investments for the future could do with some more effort, you can direct the new tax savings of Rs 12,500 towards buying an Ulip. Just in case, you need to save some more than Rs 12,500, to pay the premium of the Ulip that meets your requirements, you would agree that it would be worth the bother.
  • Enhance your ULIP investment Your job becomes simpler if you already have an Ulip. In that case, all you need to do is to use the top up feature in Ulips. You could also consider buying a fresh Ulip like a first time investor . So, if you had an Ulip for the higher education of your first child, you could consider buying another one for the younger child.
  • Windfalls like higher tax savings often have a short life. People either use them up on recreational spends or the money simply gets used up in mundane expenses. Clearly, it is a great idea to identify the Rs 12,500 as a great opportunity to shape your future. As we have just shown, the seemingly small amount has the power to change your future.
  • Source: www.bseindia.com
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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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