ULIP and Other Tax Saving Investments Ideal in Your 30s

The 30s are the most financially transforming years of life. Your career is almost set, income is steady, and you have learned much about your goals, savings habits and investment needs. This is also that time of life when your family responsibilities are catching up with you, and new financial goals are emerging.

This is also the time when you need to seriously consider the tax implications of your long-term investments and vice versa. Therefore, here we talk about the right tax-saving plans available for you.

Best Tax Saving Investments

Tax saving is a regular exercise with your tax liability rising every year. Also, it is not something where you want to spend a lot of time every year. So, you need to use tax-saving investments in a way that they continue for a long period and demand less attention from you.

Fortunately, most tax-saving investments are suitable for long-term investment as almost all of them have a lock-in period for withdrawals. Also, the best tax-saving investments will provide the following three exemptions:

• The investment amount is tax-exempt

• Interest paid out or credited in the investment is tax-exempt

• Maturity proceeds are also tax-exempt

Such investments are also called EEE investments, meaning exempt investment, exempt interest and exempt maturity value.

EEE Tax Saving Investments In India

Fortunately, in India, we have several EEE investment options. Each of these investments offers different risk-return profiles and features. Some of the most popular EEE investments are:

• ULIPs (Unit Linked Insurance Plans): A unique life insurance plan with feature-rich investment options

• PPF (Public Provident Fund) & SSY (Sukanya Samriddhi Yojana): Similar tax-saving profile, except you can only open SSY if you have a daughter. SSY is a great way of accumulating wealth for your daughter.

• NPS (National Pension Scheme): NPS tier-I account is a dedicated retirement investment plan. NPS gives your retirement savings a boost of equity market allocation and an age-based portfolio management plan. On maturity, you need to convert at least 40% of the total corpus to pension.

• ELSS (Equity Linked Savings Scheme): ELSS is a tax-saving investment for aggressive investors. ELSS is a pure equity mutual fund with 36-month lock-in period.

What if your Income is More Than 50 Lakhs a Year?

If your income is more than 50 lakhs a year, you should hire a chartered accountant to audit your records. Neglecting to do so will bring about a penalty of up to 0.5% of the total earnings. The maximum ceiling for this penalty is set at INR 1.5 lakh under Section 271 B of the Income Tax Act.

In case, your records have to be audited, the last date of filing of your income tax return is September 30. However, in 2024, the government extended this by 7 days, setting the last date of audit to be 7th October. For assesses covered by the provisions of the transfer pricing audit, the last date for audit was 31st October.

Introducing the Presumptive Tax Scheme

While there are no particular tax reductions for a clinical expert, there is the possibility of opting for the Presumptive Tax Scheme under Section 44ADA of the Income Tax Act, 1961. As the name suggests , under this scheme, your income and profits are  presumed to be a certain percentage of your total earnings and tax is calculated accordingly. 

The scheme applies to medical professionals  with  gross receipts not surpassing ₹50 lakhs. It can go up to ₹75 lakhs, provided 95% of your receipts are through recognised banking channels like cheques, electronic clearing system, etc. 

Under this scheme , your income will be presumed to be 50% of the receipts.

This  was introduced to lower the burden of income tax payment on small taxpayers. Under this plan, doctors whose total gross receipts are not more than ₹50 Lakhs in a financial year (April – March) can file their return proclaiming half of the gross receipt as income. After deductions in section 80, they can pay the tax on the balance sum.

What are the Benefits of the Presumptive Tax Scheme?

While you ponder on taking this scheme up, here are some benefits you should know about: 

a) You can file an Income Tax return form ITR-4 - which is a much more straightforward process - rather than ITR-3, which is generally confusing.

b) You will be able to manage the government forms alone, without  paying an accountant.

c) Usually, there are very few costs to declare for a doctor as you have to , announce  half of the income as a benefit and equilibrium as cost. Hence, you can save a great deal that you would otherwise pay as taxes. 

The advantage of Presumptive Tax Scheme does not end with no mandate of maintaining records. The penalty under Section 271B of the Income Tax Act, 1961, is also not  applicable to you. This can help you save some money that you would have paid as a fee to a Chartered Accountant or an inspector.

While not keeping up books of record could be one of the advantages of presumptive tax assessment, it does not help if you want to know and record your losses and gains.

Likewise, the  restricting factor of  this scheme is that there is no guarantee of the costs and allowances from your income. Thus,  it becomes difficult  to differentiate between the losses and gains you earn from  your medical practice and any other freelance work that you might be doing.

What if you have Two Sources of Income?

Apart from being a doctor, if you have any other source of income, they both come under the Income Tax laws, and the earnings are all taxable. Add your freelancing pay to your salary to determine the total tax you have to pay. In any case, you can utilise the advantage of the presumptive tax collection plan and add just 50% of your independent income to your salary.

For example, let's say your salary is ₹22 lakh and your freelance salary is ₹12 lakh. Here, you can utilise presumptive tax collection and add just 50% of the last to your total. Therefore, your total pay for the year will be ₹28 lakh.

Conclusion

So, now you know that if you are a doctor, you need to do smart tax planning by staying compliant while maximising benefits. You can opt for traditional bookkeeping or the simpler presumptive taxation scheme under Section 44ADA. You must know that understanding your tax obligations can go a long way in securing your financial health. Make informed choices, keep your records in order, and consider professional guidance if your income scales up because when it comes to taxes, prevention is better than a penalty.