37 JOURNAL OF THE ASIATIC SOCIETY OF MUMBAI, ISSN: 0972-0766, Vol. XCVI, No.
2, 2023
TAX PLANNING STRATEGIES AND INVESTMENT SCHEMES FOR INDIVIDUAL
Dr. C. KOTHAIANDAL, Assistant Professor, Department of Commerce, Sree Saraswathi
Thyagaraja College, Pollachi, Tamilnadu
SHILPA. S, Research Scholar, Department of Commerce, Sree Saraswathi Thyagaraja College,
Pollachi, Tamilnadu
Abstract
The growth of the country depends on the saving and investment of an individuals. The
individual has to plan their investment which should be benefited in their all future aspects. If the
people started to plan their saving and investment in such a way, it will be helpful for their personal
as well as the nation building. In reality, people never find time to analyse their investments and they
failed to plan their fruitful savings plan. Especially the middle class people may find difficulty in
saving their hard earned money and may struggle in choosing better investment plans. The
investment plans should be selected with intention to earn more return as well as to reduce the tax. In
order to earn more and reduce the tax, the tax planning is very essential. Tax planning means
choosing tax saving investments for minimizing the tax. The individual tax payers have to make the
tax planning which help them to reduce the tax liabilities and also it should provide tax exemption,
tax rebates and benefits. Tax planning is most significant for the middle class salaried people. Hence,
this study has been made an attempt to give clear awareness on various tax saving investment
schemes.
Key words: Tax planning, tax saving, investments schemes, financial security.
Introduction
The individual salaried employees should plan their financial plan in advance. The term tax
planning is financial planning for improving tax benefit. The tax planning can be done with the help
of selecting tax saving investment schemes, tax exemptions, tax rebates and benefits as much as
possible. This will only help them to save the money and facilitate to escape from tax liability. Many
of the middle class salaried employees invest in many investment schemes but they are not aware of
the tax benefit, or exemption. As per famous saying ‘A penny saved is a penny earned. In order to
save money on tax, tax planning is vital. And it is important to do tax planning to make best use of
their earnings by reducing the incidence of tax. Map out well investment strategies at the beginning
of financial year instead of nick of time swindle. There are various quick-witted instruments schemes
are introduced by Govt. of India to help individuals to invest and get reduction from the tax. It’s not
only for saving money for tax saving options which is very essential for reaching financial goals as
well.
Review of Literature
Investment schemes play an essential role during tax planning especially for middle class
people. It is important to do tax planning to make best use of their earnings by reducing the tax
burden.
Savita and Lokesh Gautam (2014), find out the most suitable tax saving scheme used to save
tax and also to identify the amount saved by salaried people from the selected schemes. This study
reveals that the most adopted tax saving instrument is life insurance policy followed by provident
fund. Medabesh and Khan (2020) made an attempt to study the preference of investment in financial
assets of salaried class people in Jammu & Kashmir and tax payer build a suitable portfolio
investment and regular habit of investing in various schemes to unfold benefits. Pratap Singh (2019)
examined that ELSS gives more returns than ULIP investments with more transparency and a more
securable scheme. Ayoob CP (2019) analyzed attitude and preference of government employees
towards various tax saving schemes to choose an ideal tax saving scheme. He concluded that most
of the employees gave first preference to Life and Medical insurance plan among all which has
38 JOURNAL OF THE ASIATIC SOCIETY OF MUMBAI, ISSN: 0972-0766, Vol. XCVI, No.2, 2023
safety and regular return. Many are not aware about ULIP, ELSS, Infrastructure bonds. Usman
Ghani Farooqi (2022) the most appropriate and popular tax-saving tool, as well as the amount saved
by employees in that instrument, he recommended that saving and investing regularly gives more
shelter on tax advantage.
Statement of the Problem
In India, there are three levels of income group of people living. The higher income group,
middle income or middle class and low-income group. The middle-income group and low-income
group of people suffer a lot economically. So they should be very cautious in their financial
planning. In order to improve their financial planning, they should do the better tax planning also.
The best tax planning includes selecting best tax saving investment schemes. At the time of tax
planning, it is essential to ensure that the investment which gives better savings. But Individuals have
wrong pattern of investment due to lack of knowledge or struggles in fitting the best-suited choice in
the investment planning. The awareness on various investment schemes which provides tax saving
option is a main problem identified and this article made an attempt to provide clear comprehension
of various investment schemes which helps to save the tax of middle class salaried persons and to
reduce their tax burden.
Objectives of the study
1. To know the importance of tax planning and tax saving
2. To identify various investment schemes that saves the tax
Methodology
This article aimed to assess the importance of tax planning and tax saving and identify the
various investment schemes which helps to save tax. To achieve the above objectives various related
reviews were collected from different articles available from internet and journals. The great
auditors, academicians, accountants, economists of various institute have contributed more on this
topic was well taken and used for this studies. Further scope of this study may be considered for
identifying various deductions, allowances and rebates available for saving tax.
Tax Planning
Tax planning is one among the financial planning for reducing the tax. The main goal is
reduced one’s tax liabilities and optimally utilize tax exemptions, tax rebates, and benefits as much
as possible. Tax planning includes making financial and business decisions to minimize the
incidence of tax. It enables one to think of their finances and taxes at the beginning of the fiscal year,
instead of leaving it to the eleventh hour.
Tax Saving Investment Schemes:
These investment schemes are providing tax exemption up to maximum limit of Rs.1.50
lakhs as per IT Act [Link] various investment schemes which provides the tax saving benefits are
listed below.
Investment Schemes Returns Lock-in period
ELSS Fund Not fixed 3 years
National Pension Scheme (NPS) 9% to 12% Till Retirement
Unit Linked Insurance Plan (ULIP) Returns vary from plan to plan 5 years
Public Provident Fund (PPF) 7.10% currently 15 years
Sukanya Samriddhi Yojana 7.60% 21 years
National Savings Certificate 6.80% 5 years
Senior Citizen Saving Scheme 7.40% 5 years
Bank FDs 5.5% to 7.75% 5 years
Insurance Returns vary from plan to plan 3 years
Source: [Link]
39 JOURNAL OF THE ASIATIC SOCIETY OF MUMBAI, ISSN: 0972-0766, Vol. XCVI, No.2, 2023
Equity Linked Saving Scheme in mutual fund
ELSS is the type of mutual funds eligible for tax deductions under the provisions of Section
80 C of the Income Tax Act, 1961. Individuals are eligible to claim a tax rebate of up to Rs 1,50,000.
These are very helpful to salaried employees because a portion of amount can be saved in Employee
Provident Fund. This allow income tax incentives and it has 2 varied characteristics as it is eligible
for exemption up to Rs.1.50 lakh and lock in period of 3 years. Interest rate is not fixed changes but
varies based on market condition. The investors have choice to choose either dividend or growth and
can invest in various ELSS fund which have uncertainties and long-term returns.
National Pension Scheme
NPS is a voluntary retirement saving scheme laid out to allow the subscribers to make
contribution towards planned saving thereby securing the future in the form of pension. It is best
investment scheme for citizen age group between 18-70 years can invest in this scheme. It is flexible
and portable in nature which can be accessed anywhere in the country. The beneficiaries can enjoy
tax benefits on own contributions along with employer’s contribution. Employees own contribution
is eligible up to 10% of salary and get exemption up to 1.50 lakh. However, self-employees are
eligible for tax deduction up to 10% of gross income with the overall ceiling of 1.50 lakh. In
addition, an individual allowed deduction for additional contribution in his NPS account subject to
maximize investment of Rs. 50,000.
Unit Linked Insurance Plan
ULIP are another tax saving investment which offers both insurance and investment
opportunities. ULIP provides the essential financial shelter along with investing in a life insurance
plan also offers tax benefit. Moreover, with the combined benefit of insurance and investment,
one can gain the benefit on the taxability of income on the premium paid towards the policy.
ULIP plans come with a lock-in period of 5 years and offer the investors ease of investment.
Public Provident fund
Public provident fund is a financial scheme amongst tax payers because it is fully
exempted for the tax payers. It provides deduction up to 1.5 lakh, the premium paid, interest and
maturity amount are exempt from tax. It has a lock in period of 15 years. The interest rate on
PPF keep changes every year but risk factor will be same. Employees are eligible to claim partial
PPF after completion of 6 years. Minimum contribution is Rs. 500 and maximum contribution is
up to Rs. 1.5 lakh in a year. The investor can invest monthly instalment or invest lump-sum
amount within 12 instalments and make partial withdrawal only once in a financial year.
Sukanya Samridhi Yojana
This scheme is Launch by Govt. as a part of ‘Beti Bachao Beti Padhao’ campaign which
is applicable only for girl child. Maximum two girl children in a family are eligible to open and
start investing after the birth of the child till she turns age of 14 years. The account will be active
till child turns age of 21 years from the date of account opened. The maturity period is 18 to 21
years of the child which can be withdrawn for higher education or marriage. Currently this
scheme offers 7.6% of interest rate and provides benefit of compounding. The minimum
investment is Rs.259 and maximum can invest up to Rs. 1.5 lakh in a financial year. The account
can get inactive if the investor not invested for a year. That can be reactivated by paying fine.
This is a great tax-saving investment scheme introduced by the Govt. to secure the future of the
girl child.
National Saving Certificates
NSC is initiated by Govt. of India mainly for the low- and middle-income investors to
invest while saving on income tax. It is a fixed investment in nature and low risk, fixed income
product. It has maturity period of 5 years and can invest up to Rs. 1.5 lakh in a year to get tax
40 JOURNAL OF THE ASIATIC SOCIETY OF MUMBAI, ISSN: 0972-0766, Vol. XCVI, No.2, 2023
benefit. Current interest rate is 6.8% per annum. If subscribers have a saving account with bank
or post office can buy NSC certificates through e-mode as well as offline. The interest earned
gets compounded every year and reinvested by default hence will be payable only at maturity.
This is secure and low-risk product for the low- and mid-income investors.
Conclusion
The tax preparation and tax saving is main aspects of financial planning. A financial strategy
is more complicated than it appears. A perfect investment plan helps to save taxes for the individuals.
The Government promotes various investment instruments for the sake of financial security as well
as social security. As per the Income Tax Act 1961, if an individual made a specified investment in a
variety of tax saving investments is eligible for deduction and exemptions from the gross total
income. It is identified that just saving on tax is not a deal for individuals. The actual goal is to be
investing in the best investment option along with the saving tax on earned income.
Reference
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