At Your Age, What Should Be Your Tax Plan?

By Adhil Shetty | February 27, 2018

Tax planning is done according to different age groups and in line with an individual’s financial objectives and risk appetite.

Tax planning holds a different meaning for people of different age groups. People just beginning their careers, may sometimes not be so forthcoming in paying taxes since parting away with their hard earned money is not easy.

Instead, they would look for ways that can help them save taxes. Similarly, people in their mid- 40s may be having different life goals. So they may have different options like Health Insurance or Term Insurance to save tax.

Therefore, tax planning is done according to different age groups and in line with an individual’s financial objectives and risk appetite.

For people in their 20s

For people in this age group, who have just started earning, tax planning and saving is not a priority. But that is not a good practice and would not help you in the long er run. The rule is to start investing as early in your career to have adequate money when you retire. Also, this is the best time for taking risks, investment-wise. It would be wise for people in this age group to have a mix of both equity and debt oriented tax saving schemes. Schemes like ELSS Mutual Funds and ULIPs can be good long-term options for people in this age group for equity-focused investment and can also help them in getting tax deductions under Section 80C. It will also be prudent to invest a small amount at this age in debt-oriented tax schemes like PPF, NPS, etc. to get deductions under Section 80C.

30s

Once you enter this age group, you may have got married and have a family to tend to. Your financial objective now must have shifted from earning and saving for yourself to ensure the financial well-being of your family as well. People in this age group should opt for Health Insurance policies for themselves and family and enjoy the deductions under Section 80D for the premium paid for maximum deduction up to Rs 25,000 for non-senior citizens. A life insurance coverage would not only help in supporting your family during an emergency but also get you tax deduction benefits under Section 80C. In this age group, people can get additional tax benefits for tuition fees if they have school going children. If you have bought a home through a loan, then tax deductions can also be availed under Sec 24. The equity-oriented tax saving should be continued in this age group but should be done through the SIP mode to reduce the risks involved.

40s

By this age, you will be in the middle of your career and your household responsibilities might have increased. Hence, you can continue to avail tax benefits on health and life insurance premium, home loan, tuition fees. You can also shift your focus from tax equity-oriented investment scheme to debt-focused tax saving schemes and work towards achieving your desired retirement corpus. Investing in NPS and other pension plans can help you with tax benefits as well as this is also the age where you begin to consolidate.

50s

Once you step into the 50s, you should assess your retirement planning to ensure that your financial goals are achieved with your children settling down in their life. You should review your expected retirement corpus and work towards increasing it. You may have some additional funds in hand now as your home loan or car loan must have been cleared by now. You can use sections 80 (C), 80 (D), 80 (CCD) etc. to avail tax benefits by investing in low-risk saving instruments like PPF and increasing your health cover along with timely premium payments.

Once you enter the 60s, then your focus should be on capital protection and be ensuring a regular flow of income along with tax saving. This can be achieved by investing in instruments like bank FDs, Senior citizen saving scheme and continue getting tax deduction benefit under Sec 80 (C) and 80 (D).

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Adhil Shetty

About Adhil Shetty

Adhil Shetty is the Founder and serves as the Chief Executive Officer of BankBazaar.com. Adhil has a Master’s degree in International Relations with a specialization in International Finance and Business from Columbia University in the City of New York, and a Bachelor’s degree in Engineering from the College of Engineering Guindy, Anna University. Adhil is an expert in Personal Finance (Car loan/Home loan and personal loan) and he majorly consults on investment and spends rationalization for the Indian loan borrowers. His guidance is number based with real time interest rate calculations and hence useful for consumer’s real time query.

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