Begin your tax planning now

It's the month of January and chances are that you have already been looking at your tax liability sheet for the financial year 2008-09. Tax planning involves the selection of the right tax saving instruments and making appropriate investments at the right time. In the current tax system, taxpayers can successfully condense their tax liabilities by engaging themselves in effective tax planning.

Investment avenues that aid in tax-planning under section 80C include employee provident fund, public provident fund, national savings certificate, life insurance premium, Unit-linked insurance policies for instance, are ideal for creating a corpus for retirement for children's education, tax-saving fixed deposits (at least for five years with a scheduled bank) and infrastructure bonds.

Public Provident Fund (PPF) and National Savings Certificate (NSC) schemes which though offer modest returns have become more popular since they offer a higher degree of safety. In the current scenario of falling stock prices, one cannot afford to lose sight of the safety of capital and hence investment in equity linked tax saving scheme (ELSS) is attractive.

No tax planning exercise is complete without a health insurance policy.

Topics

1. Why health insurance?
2. Steps in tax planning

Why health insurance?

The rising cost of quality healthcare in India as well as the incidence of lifestyle diseases has created a need for health insurance. The health insurance policy will help you to save your investments and capital in the event of any critical illness in the family. The premium paid on health policy provides tax benefits as a deductible expense under the provisions of Section 80D of the Act. Deduction of premium lessens the taxable income. A health insurance plan is therefore an effective way to save tax along with risk cover.

Fifteen years ago, health insurance made its beginning in India with the introduction of a medical reimbursement plan primarily covering hospitalisation. However there was a need gap in the market for easy and hassle free insurance products. The entry of multiple insurance players had a cascading effect on several aspects of health insurance, and this has led to new products, practices and services.

Health and wellness form an important aspect of the balance in your life. To ensure that you are taken care of when the need arises, insurance companies provide you with a wide range of unique and innovative health insurance plans that cover much more than basic hospitalization.

ICICI Lombard's 'Health Advantage Plus' is a unique health insurance policy that covers unexpected medical emergencies like hospitalisation as well as outpatient department expenses (OPD) in the form of reimbursement of cost of medicines, drugs, ambulance charges and dental expenses. The 45 year age limit for 'no health check-up' for policy issuance is now extended to 55 years of age.

Individual health insurance plans cover the proposer singly and family insurance plans cover the entire family. Group health insurance schemes provide cover to salaried employees and are provided by their respective employer.

In case the group scheme is contributory for the employee, the amount contributed can be availed for tax break by the employee.

The amount of the tax to be paid is calculated on the nature of investments made and income earned. There are certain deductions and exemptions applicable on the taxable amount, depending upon the nature of income. To take advantage of these facilities tax planning is necessary.

The author is Director - Corporate Centre and CFO, ICICI Lombard

Steps in tax planning

Following are the steps in tax planning which would aid a person in making prudent tax plans to reduce their income tax liability and ensure a better tomorrow by making compulsory savings by investing in various tax saving schemes. These steps in tax planning are:

• Compute the gross total income
• Calculate tax payable on gross taxable income for a financial year
• Check the impact of investment in various tax planning instruments on the liability

Tax planning must start from beginning of the financial year and not towards the end, because the sooner you start investing, the easier it gets.