Jagoinvestor
December 27, 2009
Last moment tax planing in 30 minutes
Just in case you have not done your tax planning for this year and you are in a rush of doing it for providing documents proof to your employer, I will tell you how you can quickly do your tax planning at the last moment. First of all it’s not advised that you wait for last minute for your tax planning investments but now if you are late, let’s see how you should plan for your investments at the last minute to save your taxes. We will also discuss in this short article what are the things you should not do in hurry.
Don’t get mad about tax saving: If you have short term Commitments and can’t afford to lock your money for long term it’s better you do not put money in Tax saving Instruments. You should never do Investments just for tax savings. I have personally not invested for much tax saving this year apart from my company PF and Insurance. I have short term commitments and I cannot afford to lock my money for another 3 yrs. So I better pay tax on the part which I could have invested. There is no point in locking my money and then again running around for personal loan or credit from Friends and Family when need arises.
Life Insurance: Make sure you have adequate life insurance cover. If not, take a term insurance for amount of the cover your are short of. Protection is the first step of successful Financial planning. Take a Term Plan from two Insurers. Look at how to calculate your Insurance requirement. The cheapest Term plan at this moment in market is iTerm from Aegon Religare.
Planning for Long Term Goals: Make a list of goals for long term like Retirement, Child Education, Child Marriage etc (Anything thing with a target date of 5+ yrs). For these goals you can invest in Tax saving Instruments. If the goal is extremely critical and you are not a risk taker then the best thing would be Tax saving Fixed Deposits. If you can take some amount of risk, you can invest your money in ELSS Mutual funds (here is a list of good Equity Mutual funds). For goals which are 10+ yrs away, you can also put partial money in PPF. Investors who have sound knowledge of Markets movement and can spend time and efforts on switching can go for Low cost ULIP’s (see Wealthsurance and Aegon religare). Short term ULIP investing is a BIG and BOLD No No!!
Health Cover: The next thing you should target is your Health Insurance. Better take a Family Floater Plan for your Family and the premium will be exempted under Sec 80D up to max of 15,000.
Short Term Goals: If you have any short term goals then do not put money in any tax saving instrument, rather put money in non-tax saving instruments like Plain FD (See, how to find best FD), Debt Oriented Mutual funds, Avoid Equity as far as possible if you are not a risk taker.
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So the hierarchy of your products should be like this
- Life Insurance
- Health Insurance
- Long Term Investment products like ELSS and PPF
- Medium term Investment Products like tax saving FD
What you should not Invest in?
Another Important Point is what no to do in Hurry? So here are some of the things you need to remember
- Do not invest in ULIPS in hurry, the last 3 months of financial year is the time when Agents will give their best performance in luring away investors. Don’t listen to their stories of India Shining and other bakwaas, if you don’t understand the product and you do not have skills to manage ULIP’s. Same applies to ULPP’s or any other market linked products.
- Do not invest in Endowment or Money back plans for tax savings. Your Father, your Grandfather or your Uncle might push for it but investing in those policies is a long term commitment and just for saving tax this year you cant invest in those policies.
- Evaluate your risk appetite again and then take decision. Most of the people can take risk and their situation allows them but they don’t take risk. On the other hand there are people who’s situation does not allow taking risk, but still they take the risk. They confuse between Willingness to take risk Vs Ability to take risk.
Conclusion
Tax saving should be done at the start of year always so that we dont take wrong decisions in hurry. But if you are late you can take some logical decision and still do your tax planning.
Please share your ideas about what other instruments can be used for long term tax savings. Let other know how early tax saving decision has helped you.
The agent didnt seem to believe in CI cover! He asked me to increase the cover for my mom in my present mediclaim as close to the max limit of Rs. 5 lakh as possible and he seems to be of the opinion that is enough! Well the CI cover is only Rs. 1 lakh so there is some reason to what he said.
I also wanted to get some tax benefit. But since the agent was so against it I let it go!
However if someone over >60 does not have mediclaim and cannot afford too much premium then the Varistha policy of National insurance is a pretty decent one.
hmm.. ok .
let me find some time to look at it . Why dont you compile a small post on that policy . looks like a good one to post . 🙂
Manish
Reg. National insurance CI policy. Something interesting happend yesterday and I thought I will share with you:
I have Mediclaim cover of Rs. 2.5 lakhs for my 62 year old mother from United India Insurance. I taught since National insurance has a CI cover for people above 60 ( Sum assured Rs. 1 Laksh only)., I taught I will get it for my mom also get to save some tax under 80 D.
When I gave the above details to the National Insurance agent, he advised me to stay away from the policy and told me my present policy, without CI, was better!. he said the product was good only for new entrants.
Now here is an agent who actually asked me not to take a policy from his company! Now we were not related. I never spoke to him before in my life!!
needless to say I listed to him!
What was the reason he gave ? Agent giving some real advice … India is changing 🙂
Manish
Dear Manish,
This is my reply to Manickam’s response to my views on Apollos DKVs health plan. Hope you dont mind.
Well Manickam, I am glad you are quite happy with the plan. To each to his own and as Manish said as long as once can make an informed decision its fine. I dont need to agree with you and you don’t with me as our needs are different. For instance my dental and eye care expenses incur every year and my parents dont mind shelling out money for master checkups.
What I wrote earlier pertains to the DKVs premium plan. I see now Maxima has more options and at higher cost I am sure. I can’t find a calculator for maxima.
Reg. Out patient costs I can only see dental care and consultations.
Its important to recognise eyecare and dental care has to be done within network hospitals.
This is useless for me because I go to private clinics and I am quite comfortable with these for over 20 years! I wont change doctors or go to a new place just because I want a refund of Rs. 5000 (in premium plan). I would pay more premium, go to a new doctor and do more paperwork! Not acceptable to me!
I have seen a lot (believe me a lot) of hospitalizations in my lifetime and I know what I want
But if the plans suits you and if you and if you have the money to afford it. Good luck! Hope you never get to use it Best wishes!!
Wow .. this is one of the best replies I have ever seen 🙂 .
This is what I call the perfect thinking . Successful financial planning happens when a person has full control of what he/she is doing , knows very well why he/she is doing it and understands the effects of it . Good one .
However Manickkam’s reply was more general and not targeted at any specific case.
Thanks for the contributions guys ;).. you guys are making this comment section a great quality discussion dashboard and I am glad 🙂
Tip : when you reply to someone , click on the “reply” button just below the comment and then reply , that way the nesting will be proper 🙂
Manish
“I Would like to assume that most of the people go for Term Policies with Private and less for Money back ”
I think this is incorrect private insurers advt for ULIPS, child plans and the like; that is policies with maturity benefit. In any case if private insurers have more term polices then their death claim settlement is lower (first link I sent you) and therefore I would certainly worry about taking a term policy with a private insurer!
Errrr …
I was talking about traditional policies , not market linked products .. In that case my argument is not valid . You are correct .
Anyways we need proper data 🙂 .
Manish
“I am trying to see if thats the reason why private insureres have that high claim rejection ratios ”
Private insurers also have money back policies and they also dont advt term policies so I think this argument will work for them too and if they hold 80% money back polices then the statistics remain unchanged. If they actually hold more term policies than LIC does then it would be bad for them assuming every money back is paid (this need not be f course the case). Well as you said we need proper stats
“Private insurers also have money back policies”
Yes , the thing is that Money back policies are mainly famous with LIC. I am not sure .. but most of the people if choose to go for money back policy , they will surely choose LIC only apart from rare people . I Would like to assume that most of the people go for Term Policies with Private and less for Money back . With LIC its vice versa .
Though I dont have data , we are just discussing the posibilities ..
Manish
“Do you know if we have any data which have separated out the claim rejection ratio only or term plans , because thats what we are mainly concerned with”
Yes I see your point. We are as you said talking about death claims (term insurance or any other policy) and the the first link
specifically addresses this. Anyway will find more info on this.
Reg. Tax benefit; Cheque payment is reqd only for parents I think. For self any method is okay. I work in a govt office and I don’t give proof of cheque payment for my mediclaim. I just give photocopy of the policy.
Here is a slightly old link
http://finance.indiamart.com/taxation/tax_rebates/income_tax_deductions.html
Also one last point, I am just beginning to wonder, seeing all the people ask you for advice if you might become a victim of your own popularity! What I mean is ( I don’t wish to be insulting and am only concerned since I think you are a great open-minded guy)
What if someone a few years down the line accuses you saying ‘I trusted you and followed your advice and this and this investment or insurance have failed or something like that’ Have you ever taught about that?
I know you have disclaimers but like in many things in life there is a fine line between opinion and advice and since there are many financially unsavvy people out there I wonder if they would see the difference especially when their investments fail or does not pay up! Ever taught about this?
I just checked my Spam and this comment was lying there .. So i am late in replying .
Regarding giving advice to people , I can see your point and I think it makes sense . I have to slow down and make sure that I am also on safe side 🙂
I am also a learner and I sometimes tell things after searching on net and you know how crowded and messy information is there , so even I make mistakes 🙂 . But I got your point . I have to make sure that I am suggesting things only till a point where I am not putting my self at risk in Future . Thanks for putting the point . Appreciated 🙂
Manish
Pattu, here is some more clarity on claims under Section 80D :
If you have taken a medical insurance plan for yourself, your spouse, dependant parents or children, you can claim deductions up to Rs 15,000 (and additional Rs.15,000 for your parents’ medical insurance) under Section 80D for the premiums paid. The limit now has been enhanced to Rs 20,000 for senior citizens on the condition that the premium is paid via cheque.
I am regular reader of ur blog and found very useful information from here.I want to add one unit linked insurance plan in my portfolio. Some one has suggested me ICICI pru Lifestage Assure plan but i don’t hv much idea regarding selecting a ulip.
plz suggest me shuld i invest in this plan.
thnx in advance.
Kamlesh
I would suggest look for IRR of the policy before you go for it .. Take one which is around 7.5% atleast … Have a look at SunBirla and Aegon Religare ULIP’s
Manish
“Does that means that if we break up LIC claim rejection ratio , the death claim rejection will be much higher .. May be less than private insurers”
I dont see how you get that impression. Both the links I sent pertain to Death claims and so does the IRDA report. We could safely assume maturity claims are paid by everyone in full. Otherwise they could have a huge lawsuit against them unless there are valid reasons.
For my mom I have mediclaim from United India with a cover of Rs. 2.75 lakhh. I am also going to get another mediclaim+CI from National insurance for her tomorrow!
This is mainly for tax break also because on one else would give her (62 years) a CI cover.
hmm.. Ok the reason was this .
“The number of claims rejected by private insurers as a percentage of claims booked was 13.98% in 2006-07, while the claims rejected by LIC were 1.43%”
Now , the claims rejected by LIC were 1.43% . So out of 100 claims received the rejected were 1.43% . Now these claims include Maturing policies + Term policies claim . If bulk of the claims are Maturing polices like say 80 out of 100 .. then 20 are term policy . All 80 out of 80 are honoured generally so .. which means that the rejections which were 1.43 should be out of those 20 term polcies only .. which would actually increase the rejection rate for plain insurance policies .. I am trying to see if thats the reason why private insureres have that high claim rejection ratios
Do you know if we have any data which have seperated out the claim rejection ratio only or term plans , because thats what we are mainly concerned with .
This is just my understanding .. Not sure if things are other way .. what do you feel about it ?
Manish
% claim rejected for private life insurers -break up
http://www.saravananlic.com/Content/information/insurancenews_details.asp?NewsCode=2301
“Life insurers receive two types of claim, the first are the maturity claims where the policyholder gets the savings that accrue under his policy at the end of the term. Bulk of the claims comes under this category, and usually there is no dispute on maturity claims, as these payments are akin to repayment of a maturing bond. The second set of claims, which are far fewer, are death claims.”
Does that means that if we break up LIC claim rejection ratio , the death claim rejection will be much higher .. May be less than private insurers .
what do you feel .. thats the only inference i can make out .
Manish
LIC or Private Insurers? Few Interesting Facts. ( BimaGenie )
Apollo DKV Maxima
Dear Manickam,
There is some important fine print (or foot notes) you left out.
Life-long renewal is offered not guaranteed. They are very different things!
Maternity expenses start after 6 years so from this point of view its not advantageous for many.
Dental plan after 3 years and that too max. of only Rs. 5000! If someone can cough up nearly Rs. 28,000 p.a. surely they can spend Rs. 5000 on a dentist.
E-opinion; Most often it would confuse people if the online doctor does not agree. In the case of critical illness there only so much an online doctor can do. Trust me I have considerable experience in this regard!
I don’t see why its useful for older people. Its too expensive in general and way too expensive for older people: nearly three times more than what I pay for my mother.
Eye care once every 3 years: Again not useful for families which change glasses every year
It says health check up every second year and all the above subject to pre-authorization again possible but inconvenient
2-year wait for cataract
Look before you leap. People who know how Apollo hospitals operate you would know. The plan as their group of hospitals is good but at a hefty price!
Thanks for the contarian view .. I just had a fast look at the data provided my Manickam .What policy do you have for your Mother .. please share with us .
Manish
Pattu,
I accept it has the premium on the higher side but I would say it has its reasons for it. It is one of the very few products which supports OUT patient costs. You might have known how much the health products costs and you can buy medicines for this as well.
Remember, you are not buying this product for your tax. Tax benefit is coming to you as a by-product of buying this.
Also, you can be relieved that your parents are always in sound health, as the health check-up is done for free every year. Do you know how much they cost every year for doing a master health check-up? This increases monsterously every year!
And the OUT patient visit is not the E-opinion as you have mentioned but a direct visit to the doctor. To correct you, there is dental and spectacle change possible every year. But, I dont find much benefit in dental/spectacles every year.. Thats added for the purpose of increasing the premium may be. But I would suggest, This is one of the best plans in the market which is packaged with almost all the necessary features.
This can be compared to a mutual fund where you give some FMC (Fund Management Charge) as extra for managing your funds to manage your risk. If you know your stocks well, (What to check instead of master health check-up, maternity benefits, spectacles, dental care, etc.,) you can think separately and invest in parts 🙂 . But, there are no mediums to do it in parts though .. and also Apollo DKV you are not paying FMC but a huge premium 🙂 (3 times as you mentioned, but worth its benefits, I would say.)
Beware, you can’t make your parents to accept to do master health check-up when they are healthy and they would do it when its free and its really worth it. This also does give CI coverage till 70 years.
I will come with a difference between national insurance and this Apollo DKV sometime soon. Let me know your comments.
Thanks,
Manickkam.
.-= Manickkam´s last blog ..IPL becomes SIPL =-.
Good post Manish.What you said is extremely true in “Don’t get mad in tax saving”. I know many colleagues who take up endowment plans and ULIPs paying premium more thank 20k just to save tax of about thousand rupees. They can easily reduce their tax by submitting medical bills and HRA on time.But they are too lazy to do that and in the end fall in the trap of agents.
And the background color, it was white even when I accessed from office. But from 2 days it is in grey color. I don’t know why.Can you just remove the template and keep it again ( kind of recycling the server 🙂 )
Thanks
Yes .. People buying idiotic products just for tax saving is the reality . I am glad you are my long term reader . Please help people understand that its not a right thing .
Manish
Hi Manish,
Need your advice in identifying the good health insurance policy for my parents in india. My dad is 60 years old and mother is 53 years old. I am working in Singapore from past 2 years, next time when I come to india on vacation, planning to buy health insurance cover for my parents. I am having zero knowledge on this particular area. Currently as I am not paying tax in india, I have no need to consider my tax benefit for buying insurance product.
My main objective is to have good insurance cover up to meet the health needs of my parents in india. I don’t mind paying bit more premium, If the insurance product is worth enough.
I am a regular reader of your blog. You are rocking as usual with your wide variety of articles and waking up the inner investor of the common man. Wish you a happy new year in advance. Expecting exciting posts in the upcoming 2010.
Cheers,
Mahesh
Hi Mahesh/nixon,
I was also looking for a health insurance policy for my parents and found “Apollo DKV Maxima” plan to be the exact match. Even though the premium is slightly on the higher side of it compared to others, the benefits we can get out it far outweighs compared to the other plans available in the market.
Few benefits include:
(1) Life-long renewal (First of its kind to give such thing)
(2) Health check up for free every year (In all other plans, it would be only once in 4 years)
(3) 6 consultations for free (out-patient) every year.
(4) Out-patient related expenses covered to some extent (including the dental expense and spectacles expense)
(5) In-patient coverage for 3 Lakh (This will be the same as compared to other plans)
I would highly recommend this plan for people in the age group of 55-60.
Probably, Manish can get a detailed analysis on the plan.
Thanks,
Manickkam.
.-= Manickkam´s last blog ..IPL becomes SIPL =-.
Hi Manickkam,
Thanks a lot for your valuable Suggestion. I will look into the details of this product.
Wish you a happy and prosperous new year 2010
Mahesh
I will come with some posts on Health Insurance soon .. Please be patient . For the meanwhile have a look at Manickkam’s reply . He has given some good review of a product ,
Manish
Manikackkam
Thanks for the review .. its looks nice .. I will do a review soon and come up with the post . thanks for this .
Manish
Hi Manish,
Advance New Year Wishes!
I am a regular reader of your blog. After a lot of thought process i have taken LIC term insurance amulya jeevan for 35 years (I am 25 years). Though i know the premium is slightly on high side, i do not want my family to suffer with regards to claim process in case of any untoward incident that might happen to me. I would like to thank you for the immense knowledge you are sharing with us.
I have a request, can you please give your opinion on Health Insurance in coming weeks so that it will be helpful for the readers.
I would also like to know your opinion on investing in SIP/Mutual fund in these current environment. I am of the opinion, to wait till mid of 2010 before taking a full fledged dive into mutual fund and direct equity since i feel markets are expensive now ( dont ask me what is the logic, even though i work for an equity research firm i have no answer).
Best Wishes
@Nixon
Yes . As per your risk appetite you have taken a right decision of taking a term plan from LIC .
I would come up with Health Insuance soon .. give me time .
Regarding investing in Stock market right now .. I think markets are over valued . But Incase you are investing for very long time , I would say go ahead and start the SIP’s .
Manish
It is that time of the year again when last year I decided that this time all of the stuff will be planned at regular intervals… nbut again i am in the same situation.. this article is surely gonna help manish 🙂
.-= Amandeep Singh´s last blog ..The best gift for your children on the New Year 2010!!! =-.
Thanks
Manish,
i want to take term insurance and i have read your earlier articles regarding i term from aegon religare. so i want to have a mix of term insurance from LIC and aegon religare but i want to know about the solvency ratio for both these companies. please send me the link where i can come to know about the solvency ratio of various insurance companies.
Regards,
Anuj
As per IRDA report 2007-08 . LIC solvency ratio is 1.52 and it does not have info on AR as its new .
Wait for 2008-09 report .. look at latest report :
Hey Manish … Its very nice post and being a regular reader of J.I its another crown in your blog. But back ground of post seems to be mismatched with font color and thus feeling bit uneasy while reading . Can u make correction in back ground color. ?
Thanks Niranjan
The background color of posts is “white” only. And the text is mainly in Black . Are you feeling uncomfortable with that combination ? What else i can try ? Suggest ?
Are you talking about the background color in extreme left and right of blog .
Manish
Manish,
Please go thru below link for point # 3.
http://economictimes.indiatimes.com/Personal-Finance/Tax-Savers/Tax-News/Smart-tax-saving-strategies-without-spending-a-penny/articleshow/2670342.cms
Nitin
Thanks for the link 🙂
Manish
Manish, I think Niranjan is accessing the blog from his company or some other source with limited access… I too am accessing it from my office where there are restrictions… and I am also unable to see the white background… the combination that gets displayed in this case is black text with brown background…
Niranjan, i guess that is the problem… as the same is the problem with my blog… EquiTipz… this is because of the applications like websense that restrict some components of the webpage from loading…
Manish, not to worry… nothing wron with our blogs 🙂
.-= Amandeep Singh´s last blog ..The best gift for your children on the New Year 2010!!! =-.
great .. i am relieved ..
Manish
I think by now all of us know most of the common sections under IT act 1961, such as Section 80C (Rs.1 lakh in deductions) and 80D (Rs15,000/Rs20,000 for senior citizens on the condition that the premium is paid via cheque). What is less published are the other oppurtunities for tax savings such as:
1) Section 80DD (Expenses on the medical treatment of a dependent with a disability)
2) Interest on your home loan (‘income from house property’ under Section 24(b) up to a limit of Rs1.5 lakhs p.a. in case of a self-occupied house)
3) Shuffling/Switching for ELSS investors
4) Charitable donations
5) Cash gifts
If someone has any understanding of these, he may please the ideas here. Thanks.
good points .
can u explain the 3rd point ?
manish
3) Shuffling/Switching for ELSS investors: It means if you have completed 3 years in an ELSS investment then just sell it and buy again. You wont have to pay tax and new investment will get 80C benefit
ok .. great .. Yeah .. I have that in mind and I am coming up with the post also on that ..
thanks
Im back from vacation.. Wish you all a Happy New Yr guys!
Ninad is right wrt shuffling, you also end up avoiding long term capital gains since you will be redeeming after more than a year. Only risk is that the NAV can go up or down in the shuffle process and you may end up making a small profit or loss.
Some fund houses allow switch option for tax benefits. Say an investor with previous ELSS investments doesn’t have money to make further investment in the current financial year, he then should switch to some liquid fund and back into the ELSS fund within a short span of time.
I recently came up with a post on how you can save full tax on Rs 1 Lac by investing just Rs 63000 in ELSS. Though 63k is an indicative figure but 80k is achievable :). For details you can check http://www.finwinonline.com/2010/01/invest-rs-63000-and-save-full-income.html
.-= Amit Kumar´s last blog ..Invest Rs 63,000 and save full Income Tax on Rs 1,00,000 under Sec 80C! =-.
Nice points. I do agree to the fact that you should never invest just for tax saving in mind. I also strongly suggest people to take a bigger picture in consideration before opting for tax saving related plans wrt investment.
.-= Mohan´s last blog ..Telangana or United Andhra Pradesh? =-.
Thanks for your points Mohan
Manish
One can apply for a separate medclaim policy for a parent. If they are senior citizens there is a Rs. 20,000 additional cover possible. This I think is good for quick tax planning. I will recommend taking National Insurances medclaim+ critical illness policy for senior citizens (> 60).
http://www.nationalinsuranceindia.com/nicWeb/nic/PolicyServlet?id=9999&name=4866.html
It costs about Rs. 8000 or so and I think you can it buy it without much planning and its bound to come in useful. Of course you may have to spend the time and money on some medical tests
One can buy this even if one has an existing medclaim for the parent since this is the only policy which has CI cover for senior citizens. The CI cover has fixed sum assured of Rs, 2 lakhs.
Nice suggestion Pattu .
I looked at the policy and its look nice. Let me evaluate more on this and come up with some post in future . Its very beneficial for senior citizens 🙂 .
Manish