Tax planning for salaried women

Anil Chopra

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 and salaried women. A couple of years ago, there used to be an extra rebate of Rs 5,000 for tax-paying women but it was withdrawn and now the provisions of the income tax laws treat salaried women on par with salaried men. There are no special benefits which are only available for women as compared to the men folk.

Rebate under Section 80D

Now, coming to tax planning for salaried women, the two most important sections that need to be taken into account are Section 80C and 80D. First let's begin with Section 80D, which allows deduction from taxable income for paying health insurance premium up to Rs 20,000 per annum. 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 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 1-2 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 1-2 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 if they have dependents such as children and parents who are dependent on her income, then it is advisable to go for a family floater plan where 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.

Deduction under Section 80C

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 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 1.5 lakh only in the last announced Budget.

Tax-saving options under Section 80C

Now, let us understand various tax-saving options under Section 80C and their suitability to salaried women.

EPF and PPF 

One is the basket of provident funds, so naturally every salaried woman will contribute something to Employee Provident Fund (EPF) and some amount must be contributed by the employer also so that it gets qualified under Section 80C. Apart from this, Public Provident Fund (PPF) account is recommended for every individual, including salaried women, because they may have job today but not tomorrow or maybe she is nearing retirement, so PPF which is very effective way of creating corpus for meeting your future goals is definitely required by every individual. So apart from your EPF, PPF 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 50,000 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 per annum can be kept in PPF. However, if EPF alone is already Rs 40,000-50,000 then additional Rs 10,000-20,000 can be kept aside for PPF annually as per the saving capacity of salaried women. But remember that maximum limit of investing in PPF in a year has also been enhanced to Rs 1.5 lakh annually. This is the safest option where they cannot 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 a must for every salaried woman.

Equity Linked Saving Scheme

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 children or marriage of children etc. In order to create wealth, allocation to equity is important and this need can be met by investing at least Rs 50,000 out of the total Rs 1.5 lakh into various ELSS schemes and there also mode of investing should be Systematic Investment Plan (SIP) rather than lump sum.

Life insurance plans

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 rare cases, if salaried women have no dependents and living life like a single woman, 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 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 her salary level, women working in Central Government can afford to allocate higher amount to 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 per annum then salaried women must have 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.

The author is Group CEO & Director, Bajaj Capital Ltd. The views expressed in this article are his own