5 Tips to Grow Your Wealth While Saving Taxes
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Tax planning is an integral part of every individual’s financial journey. Responsible citizens contribute to the nation’s progress by paying taxes. However, optimising tax payments enables you to use legitimate avenues to grow wealth. Let’s explore a few tips to grow wealth while planning your taxes.
What Is Tax Planning?
Tax planning involves making strategic financial decisions to minimise tax liabilities while meeting your long-term financial goals. It encourages you to utilise legitimate provisions in the tax laws to your advantage. Effective tax planning requires a deep understanding of taxation laws, personal finance, and investment options.
Tips to Grow Wealth While Saving Taxes
Learn About Taxation and Personal Finance
The foundation of successful tax planning is knowledge. Stay informed about the ever-evolving tax laws, exemptions, deductions, and investment opportunities. Utilise online resources, including official government websites, financial news portals, and investment blogs. Consider attending seminars and workshops and consulting financial advisors to gain valuable insights into taxation and personal finance.
Unify Tax Planning in Your Financial Plan
Tax planning shouldn’t be isolated from your overall financial strategy. It should seamlessly integrate with your financial goals, such as retirement planning, buying a home, or funding your child’s education. Aligning your tax planning with your broader financial objectives empowers you to make informed decisions about tax savings and wealth accumulation.
Choose the Right Investment Avenues for Tax-Saving
Investing in tax-efficient instruments can help you grow your wealth while saving taxes. In India, several investment options offer tax benefits under various sections of the Income Tax Act. For instance, Unit-Linked Insurance Plans (ULIPs), Equity-Linked Savings Schemes (ELSS), Public Provident Funds (PPF), National Pension System (NPS), and tax-saving Fixed Deposits (FDs) are popular choices. These instruments help you save taxes while providing avenues for potential growth.
Align Every Investment with a Financial Goal
Every investment you make should have a purpose within your financial roadmap. Linking your investments to specific goals helps you stay focused. It also ensures you utilise tax-saving opportunities effectively. Investing in a tax-saving scheme like a ULIP helps meet your goal of building a corpus to fund your child’s higher education. Aligning investments with goals helps create a more organised and purpose-driven approach to wealth accumulation.
Analyse Tax Investments Regularly
Tax laws and investment landscapes change over time. What might be an attractive tax-saving option today might not be as advantageous tomorrow. You must review and assess your tax-saving investments regularly. Consider realigning your strategy if a particular investment avenue no longer serves your goals or the tax benefits have diminished. Stay proactive and make necessary adjustments to optimise your wealth growth and tax savings.
How to Use ULIPs to Plan Your Taxes and Grow Wealth
Unit-Linked Insurance Plans (ULIPs) are versatile financial instruments. They offer the dual benefit of insurance coverage and investment growth. ULIPs offer investment flexibility. You can choose how your money gets split across asset classes like equity, debt, and hybrid funds. ULIPs serve as a tax-saving tool under Section 80C of the Income Tax Act, 1961 and offer potential returns over the long term.
ULIPs allow you to tailor your investment strategy to your risk appetite and financial goals. As market-linked products, they provide an opportunity to earn higher returns compared to traditional savings instruments. Additionally, ULIPs offer features like fund switching and partial withdrawals, which provide liquidity and adaptability to changing financial needs.
Furthermore, . proceeds received on surrender/partial withdrawal/maturity of ULIP plans are exempt from tax subject to provisions mentioned in Section 10(10D) i.e if the premium payable for any of the years during the policy term does not exceed 10% of the death sum assured.
In addition to the above, for policies issued after 1st Feb 2021 tax exemption on maturity proceeds will be available if premium paid in any of the years towards such matured polices does not exceed Rs.2,50,000. Out of the total matured policies in a financial year, exemption u/s 10(10D) will be available only towards those polices who’s aggregate premium in any years does not exceed Rs. 2,50,000/. Rest policies exceeding the mentioned limit will be chargeable as capital gains.
Death proceeds are also exempt from tax for all ULIP plans.
By utilising ULIPs as part of your tax planning strategy, you can save taxes and set the stage for a financially secure future.
Tax planning is a powerful tool that can pave the way for sustainable growth while ensuring compliance with the law. Enhancing your understanding of taxation, integrating tax planning with your financial goals, making informed investment choices, aligning investments with objectives, and regularly reviewing your strategy helps you maximise your tax savings and wealth accumulation.
Moreover, leveraging instruments like ULIPs can further enhance your tax-saving efforts while providing avenues for potential returns. Remember that tax laws and investment landscapes evolve. You must stay informed and adaptable to maintain an effective tax planning strategy. With careful planning and prudent decision-making, you can navigate the intricate world of taxes while building a prosperous financial future.
Related Articles:
- Choosing ULIP? Know the minimum lock-in period and its benefits
- What Is the Potential for ULIP Growth?
- ULIP Plan Charges You Must Know
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#The above tax benefits are subject to conditions specified u/s 80C and u/s 10(10D) of the Income tax Act, 1961.
The afore stated views are based on the current Income-tax law. Tax Laws are also subject to change from time to time. The customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.
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