Tax planning & investments

Aar Tibrewala Darooka, a chartered accountant and MBA, is an entrepreneur and financial literacy advocate. She has over 15 years of combined experience in consulting, advisory and travel industries. A national ranker in CA, Aar is a published author, who has written a plethora of books for children’s financial education and is currently helping build awareness for financial literacy for women through her platform, Sthreedhan.

 

When Pablo Picasso said "The meaning of life is to find your gift. The purpose of life is to give it away", he probably put into words the single largest all-encompassing definition of life. To find your calling is to find meaning in your life, for everything else you do, you do for money. He didn't stop there. He further completed the beautiful cycle by saying that this calling should have just one end to use your gift in life to help others. So profound, just like his art.


As a teacher, you are part of a limited and blessed population on this earth that has found meaning in life and have further found your life's purpose to share the knowledge that you have acquired every single day of your life. But is this enough? For some, it is. For others, not so much. And giving away a third of the money you make serving the noble cause of education is really not what you bargained for, is it?

Any person's journey with respect to their money starts with understanding and appreciating what they are earning and then progresses to learning to save and grow it. One critical aspect you could potentially be ignoring is the income tax you pay on your salary. You might think that it is unavoidable and perhaps even against your duty as a citizen to pay less taxes. No one is telling you to not pay your taxes or indulge in the illegal activity of tax avoidance. In fact, the law itself provides enough such avenues through which you can invest your money and save tax! The process of understanding these options and allocating your funds accordingly is called tax planning.


One of the primary ways to reduce your tax burden while also improving your net worth and diversifying your investment portfolio is putting money into the various schemes under section 80C of the Income Tax Act. You can put upto Rs.1,50,000 into investments like public provident fund, Sukanya Samriddhi Yojana, National Savings Certificate, ELSS schemes and tax-saving mutual funds among others. The government has provided this as a stimulus to encourage people to invest in long-term savings. If you are in the highest tax bracket, i.e. you earn over Rs.10,00,000 in the old system, then you would save over Rs.45,000 in taxes by just putting money into these scheme!


The National Pension Scheme (NPS) is also a great way to augment your tax savings while investing in your preferred kind of portfolio. The NPS gives you 2 options that you can choose from while investing. It allows you a further deduction of upto a maximum of Rs.50,000 under section 80CCD(1B) of the Income Tax Act, which means that put together with the limit of Rs.1,50,000 under section 80C and 80CCD, it gives you a total deduction of Rs.2,00,000 from your taxable income.

The government also encourages people to get health insurance by allowing a deduction of upto Rs.25,000 paid towards health insurance for people below 60 years of age. You can also claim health insurance premium paid for your parents upto Rs.25,000 and a further Rs.5,000 on expense incurred towards health check-ups. So in all, you can claim a deduction of Rs.55,000 from your taxable deduction. If you think about it, the law is encouraging you to follow good practices by doing this. We all know the burden that sudden medical emergencies pose on our finances and by incurring the relatively lower cost of health insurance every year, we not only save tax on the amount paid but we also insulate ourselves from a blow in the gut that large medical emergencies can deliver.


These are only a few samples of tax planning. There are many more that may apply to you, and it would serve you well to do a little research on the same. When you make your annual budget, make provision to set aside money to pay for these items and try and pay them off early in the financial year rather than waiting for later so that you not only get the benefit of better returns but also avoid letting the payments get deferred for lack of discipline. Contribute in a meaningful way not only to nation-building by paying your taxes but also to wealth creation by investing your savings in diverse assets, particularly tax-saving ones. After all, charity begins at home!


This article originally appeared in the TeacherTribe Magazine November 2021 edition.