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How should salaried women plan their taxes
November, 25th 2014

Women are claiming equality with men in every field of life and keeping this in mind, the tax provisions are also common for salaried men as well as salaried women. A couple of years ago, there used to be extra rebate of Rs 5,000 for tax-paying women, but that was withdrawn and now the provisions of the Income Tax laws treat salaried women at par with salaried men. There are no special benefits which are only available for the female segment compared to the men folk.

Now coming to tax planning for salaried women, the two most important sections, which need to be taken into account, are Section 80C and section 80D. First let's begin with discussing Section 80D, which allows deduction from taxable income for paying health insurance premium up to Rs.20,000 pa. Health insurance is a basic need of every individual and more so of salaried women unless they are covered by their employers for any medial uncertainties.

Every salaried woman must go for health insurance policy for a suitable amount and the ideal amount is Rs 5 lakh. It has been noticed that many individuals have health insurance policies, but of inadequate amount, say Rs 1 lakh - Rs 2 lakh, but looking at increasing bills of hospitals for treatments, it is imperative and advisable that the sum assured should be at least Rs 5 lakh.

Similarly, if the employer is providing health insurance benefits but if the extent is only Rs 1 lakh - Rs 2 lakh, then also it is advisable for salaried women to take additional health insurance policy so that the total coverage goes up to Rs 5 lakh. And also if they have dependents like children, parents, who are dependent on their income, then it is advisable to go for a family floater plan where the medical treatment of dependent parents and children is also included. Otherwise unforeseen medical expenses can finish the life-long savings. So it is very important that dependent parents and children are also covered in the health insurance policy by salaried women.

Now the other important section is Section 80C where salaried women can claim deduction up to Rs 1.5 lakh by investing in various tax-saving options under the Section 80C umbrella. Here every salaried woman will have to look at the her peculiar circumstances, for selecting which option she should choose to claim the deductions under Section 80C where the amount has been increased from Rs 1 lakh to Rs 1.5 lakh only in the last announced budget.

Now let us understand various tax-saving options under Section 80C and their suitability to salaried women. One is the baskets of provident funds. Naturally every salaried woman will be contributing something to Employee Provident Fund (EPF) and some amount must be contributed by the employer also, so that itself gets qualified under Section 80C. Apart from this, Public Provident Fund (PPF) account is highly recommended for every individual, including salaried women, because they may have job today but not tomorrow or may be she is nearing retirement. So PPF, which is a very effective way of creating corpus for meeting your future goals, is definitely required by every individual. So apart from your EPF, Public Provident Fund is strongly recommended.

How much amount should be invested in PPF: It will differ from woman to woman and in our opinion for young salaried women, those who are under 40 years of age, up to Rs 50000 combined for EPF & PPF should be invested in the combination of the two. For example, if the EPF is Rs 25,000 then another Rs 25,000 pa can be kept in PPF. However, if EPF is already Rs 40,000-50,000, then additional Rs10,000-20,000 can be kept aside for PPF annually as per the saving capacity of the salaried women. Please remember that the maximum limit of investing in PPF in 1 year has also been enhanced to Rs 1.5 lakh annually. This is the safest option where they can not only save tax in the year of contribution, but also the interest earned from such investments is tax free and when the amount is withdrawn after maturity, that amount is also tax free. So because of all these advantages, PPF is must for every salaried woman.

Other option to consider is Equity Linked Saving Scheme (ELSS) launched by Mutual Funds. These are essential for salaried women with long-term goals. Long-term goals could be retirement, education of their children or marriage of their children etc. In order to create wealth, allocation to equity is important and this need can be met by investing at least Rs 50000 out of the total Rs 1.5 lakh into various ELSS schemes and there also the mode of investing should be Systematic Investment Plan (SIP) rather than lump-sum.

The third option that salaried women must consider is a variety of life insurance plans, which could be ULIPs, Term Plan or Traditional Plans or Pension Plans. Again the choice will differ from person to person, whether the job is pensionable or any cover has been provided by the employer or not. So keeping these factors in mind, they should choose the appropriate plan for giving protection to her family or dependents. In very rare cases if salaried women have no dependents and living life like a single women, in such case life insurance may be unnecessary or may not be required, but in most cases any of the above-mentioned insurance plans are required. So every salaried woman must make a list of all her future goals and ensure reaching those goals by a variety of tax-saving options in these three categories, which is the PPF, ELSS and the insurance plans.

Now out of salaried women there is also a section of women working in Central Government or State Government enterprises. There most of the employees are covered under the pension plans. So pension planning is taken care of. Also, health insurance benefits are extended by the government through CGHS plan and EPF is also there, which in case of government is called GPF. Depending upon their salary levels, the women working in Central Government can afford to allocate higher amount for creating wealth by investing in the Equity Linked Saving Scheme (ELSS). Out of Rs 1.5 lakh, if Rs 30,000 - 40,000 is consumed by provident funds, the remaining amount can be invested in ELSS with the long-term horizon.

However, please remember that Term Plan is important and the total sum assured or the insurance policy amount should be at least 7-10 times of your annual salary. If they earn Rs 10 lakh pa, then salaried women must have a coverage of Rs 1 crore. But this is only essential for such salaried women who have families to take care of. For such women who are independent, living alone, unmarried, this insurance cover may not be suitable.

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