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Five tax things that will help you ensure financial freedom
August, 13th 2015

Financial freedom liberates an individual from the constant monetary worries and tensions that are part of everyday life but getting there requires a lot of work and effort. There are several things that can ensure that you can have financial freedom but the area of taxation requires a lot of attention as this can prove to be a road block in the effort. Too much or too little attention to the tax aspect can effectively eat away at the efforts to ensure financial freedom that you as an investor have been working towards. However a little bit of work on the tax angle can pay handsome dividends. Here are some ways in which this can be done so that your financial freedom is achieved.

Invest according to your goals and not just to save tax

One of the most important points when it comes to taxation is that there are several tax deductions that are available for individual when they invest in specific instruments. One of the most popular routes is the benefit of a deduction under Section 80C. Here investment in specified instruments like Employees Provident Fund, Public Provident Fund, National Savings Certificates, Senior Citizens Savings Scheme, Equity Linked Savings Scheme, Life Insurance premium etc is eligible for a deduction upto Rs 1.5 lakh a year. This is a golden opportunity for an individual to plan their goals and then ensure that the amounts are invested that would achieve the goals and at the same time save tax. Often this angle of combining goals and tax savings investment is missed out. People do not invest according to their goals which leads to a position where they struggle to complete the tax requirements and at the same time their goals remain unmet. This is something that needs to be avoided so that one investment can yield multiple benefits.

Boost for retirement planning

The biggest financial goal for every individual is to plan for their retirement and this requires a huge sum of money. It often takes decades to plan and invest for retirement and the challenge on this front is big. A little bit of attention to the tax aspect can ensure that there is little to worry about on this front too. There are instruments like the Public Provident Fund and the Employees Provident Fund which provide double benefits. On one hand the amount invested gives a deduction from the taxable income to the individual under Section 80C but even greater is the benefit that is received on the payout. The amount earned on these schemes as interest is tax free so this reduces a huge burden when this is earned or when this is received. This can help in ensuring that the goal of retirement planning is tackled and freedom from this tension is achieved for an individual.

Medical expenses taken care of

Protection of the family of an individual is a big part of the entire financial planning process. This is the reason why medical insurance is a must for every individual so that any medical expenses do not prove to be a financial burden that can devastate the finances of the individual. A look at the tax aspect can once again provide double benefits as the premium paid on medical insurance policies upto Rs 25,000 for individuals upto 60 years and Rs 30,000 for those above 60 years is available as a deduction under Section 80D. At the same time even preventive check up costs upto Rs 5,000 are covered. This should encourage people to get freedom from the worry of medical expenses as well as get a tax benefit in the process.

Powering education

Most parents are worried about the education of their children due to the high cost involved. This is an area that provides for an improved career and earnings prospect in life. There is however a large cost that can come for achieving as this has spiralled in the last few years this but some small tax steps can ease the situation for the individual. An education loan for the purpose of higher education will ensure that the financial aspect of the process is met but at the same time it will also give a tax benefit to the individual when the loan is repaid. The interest that is paid on the loan will be allowed as a deduction for 8 years. This will also remove worries about meeting the high education costs and making it affordable.

Wealth creation

Equity is the best asset class that can help in the process of wealth creation and this benefit can be multiplied by also ensuring that the tax benefits are taken with it. Equity oriented investments like shares and equity oriented mutual funds have double benefits as the dividends are tax free and at the same time long term capital gains is charged at zero per cent rate which also makes the gains tax free. This can be used for the necessary asset allocation and the tax benefit will ensure that the goal of wealth creation takes place without taxes eating into the effort leading to another area that provides financial freedom.

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