Wednesday, January 12, 2011

Introduction to Tax planning for new hires

Check out this simple Tax calculator to know how much you owe to the government.

Section 10;Section 16;Chapter VI A

Now that you know what the Govt is going to take away from you, you need to quickly plan how to go about investing this money.  I have listed three options were you do not need to invest any lump sum amount initially.
Assuming you have a tax liability of Rs 1, 00,000, you could invest a percentage of that money in any one or more of these three options.  All you need to do is to inform your HR about your planned investments for the accounting year in advance so that they can stop deducting  taxes from your salary. You can then either ask your employer to deduct your monthly contribution to EPF , proceed to invest via a  monthly Systematic investment plan (SIP) in NPS or open a PPF account and transfer money online. Please make the investment date one or two days after your regular salary credit dates to prevent all that cash vaporizing into thin air.

 I have not listed ELSS as an option above as the tax benefits on them are about to be phased off. I would give No: 1 priority to NPS which will help you build a retirement corpus and give you the extra equity kicker of 50%. Long term investments in the equity market will surely fetch you better returns than PPF or EPF.

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