Tax incentives are provided by the government to individuals who invest in instruments for the long-term. Being a financial advisor, you must select the correct tax-saving option for your clients, keeping in mind whether they have just started their career, are in their 40s or retired. Here are some tips for tax planning as per different life phases:
Clients who have just started working
This group of individuals has a larger risk appetite plus a higher time limit to achieve their goals. Therefore, investments must be supported by equity-linked products to multiply returns. Experts suggest that young professionals can handle equity coverage of around 65-70%. Investing in ELSS via SIPs is the ideal way to save tax and produce wealth in the long term.
In addition, financial advisors must suggest these clients to take a basic health cover of at least Rs 5 lakhs. If the premium amount for a health insurance policy taken for self is up to Rs 25,000, it qualifies for tax deduction under Section 80D.
Clients who are in their 40s
Financial experts must determine if the retirement savings of clients falling in this category are sufficient or else they can go for National Pension System (NPS). Moreover, NPS offers added deduction of up to Rs 50,000 under Section 80CCD (1B) on top of the deduction threshold under Section 80C. It is vital to think seriously about increasing their retirement corpus at this stage.
These clients also need to safeguard their family in case of loss of job or any liabilities such as a home loan. Explain to them that they require sufficient life insurance and mediclaim to cope with any unforeseen events.
Clients who are retired
The main aim of retirees is to restructure their regular income. Financial advisors can recommend post office or bank FDs for a period of 5 years in order to earn steady interest along with Senior Citizen Savings Scheme which gives interest quarterly. Both these investments are covered under Section 80C. Also, interest produced up to Rs 50,000 on account of these products is tax-free for senior citizens under Section 80TTB.