Tax Saving: How to plan taxes at different stages

Tax planning is an essential aspect of personal finance. As an individual, you adapt, change and grow as you move from one life stage to another. For instance, your family may grow, your responsibilities could change and your income and expenses will have increased. This means you need to modify your tax plans accordingly to reflect these changes.

Here are some different tax-saving options you can choose at different ages.

• Age 21-30
  
  The roaring twenties! This is usually when your career takes off. At this stage, financial planning for your future might be the last thing on your mind. However, this is the best time to begin investing.
  
  Investing at this age can help you reap healthy tax benefits as well. As a young professional, you have a lot of time to plan your future. The investments you make at this phase can give you high returns eventually, due to the power of compounding. The long-term period also allows you to take on a higher degree of risk.
  
  Investment options like Equity Linked Savings Scheme or ELSS, as they are commonly known, are a great option at this stage. Here, you not only benefit from high returns in the future but also by the way of tax benefits. Investments made in an ELSS can help you claim up to Rs 1.5 lakh in as a deduction under Section 80 C of the Income Tax Act.

• Age 31-40
  
  The thirties are a crucial stage in your life. Most people begin their family life at this stage. Your income here begins to increase, but so do your responsibilities. Your risk tolerance may still be high in your thirties. However, while you continue to invest in long-term investment options, you may also want to consider other avenues for tax advantages. For example, contributions to Provident Funds and Life Insurance form a significant portion of the investment under Section 80C.
  
  In addition to this, you can also claim tax benefits for tuition fees of your children under this section. Contributions towards Health Insurance for you and your family will be eligible under Section 80D. And if you have taken a Home Loan to buy a house, you can claim deductions under Section 80C for the repayment of principal and under Section 24(b) for the repayment of interest.

• Age 41-50
  
  As you reach your forties, it is an excellent time to reflect on your past investments and chart out your future course of action. Assess your current tax-saving investments and note if you need to make any changes. For example, you may want to increase your Health Insurance coverage as you may have more dependents now. You may also want to reassess your contributions to PF and Life Insurance, as you grow older.

• Ages 51-60
  
  This is the decade where you could be earning the most. Most people use their earnings to pay off existing debts like a Home Loan or fund their children’s education or marriages at this stage. Investment options like PF, tuition fees and insurance continue to account for tax-saving benefits. You should also study your investment in equities and see if any changes are required. As you near your retirement, you may want to slowly shift some of your funds from equities to fixed income assets.

• 60+
  
  For most people, retirement indicates an end of their earning period. But even while retired, you may want to keep your tax liability at bay. And this means building a portfolio of the right mix of fixed-income and market-linked investments. This portfolio aims to ensure you have a consistent stream of income for the rest of your life while minimising your tax liability at the same time.
  
  Investing in the Senior Citizens’ Saving Scheme (SCSS) is a popular option. The scheme allows for premature withdrawals and the investments are eligible for tax benefits under Section 80C.

In a nutshell

Tax planning is an essential aspect of financial planning. Having said that, intelligent tax planning means that you review your approach every few years. This allows you to study your investments and make necessary adjustments. HDFC Bank offers a host of tax-saving products, you can choose and invest as per your need. Remember, every decade brings new changes in your life, and a sound tax plan helps meet these financial challenges.

Want to know the basics about tax planning? Read here to know more!

Investor can claim a deduction of a maximum of Rs. 1.5 lakh per annum by investing in a tax-saving FD. Know about your returns with FD Calculator.

To invest in tax-saving products, click here

* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.