Insurance Guide

How do wealth managers help you with taxation?

A wealth manager can bring a lot to the table when it comes to helping you with tax planning.

Investors tend to focus on how their portfolio is performing and this means they spend more time on investment selection and asset allocation.

However, almost every financial decision has a tax consequence as well. By minimizing taxes, one saves money – which in turn supports wealth creation.

Fleeting tax regime

Personal taxes keep changing regularly in India. In Budget 2018, a 10% Long-Term Capital Gains (LTCG) tax was imposed on stocks and equity fund gains. A year later, an additional interest deduction of Rs 1.5 lakh was introduced on loans taken for owning affordable houses.

And in Budget 2021, taxes were imposed on interest earned from EPF contributions over Rs 2.5 lakh in a financial year. Similarly, capital gains taxes were brought in for high-value annual ULIP contributions (above Rs 2.5 lakh).

Future-proofing investments

One should therefore devise an investment strategy that takes into account existing tax benefits and also potential tax changes. One way is by being conservative in your calculations, especially while planning for non-negotiable goals like retirement, children’s higher education, and so on. For instance, if you have set a goal of Rs 5 crore for retirement, you can assume a higher tax regime (of say 20% tax on investment gains), while working out the investment strategy.

A wealth manager not only assists with an investment plan but also does sensitivity analysis to figure out probabilities of achieving your goals under various scenarios.

What is tax planning?

Tax planning is essentially a process of analyzing one’s financial situation or plan and minimizing how much they pay as taxes. It is a key part of financial planning and helps one improve his chances of achieving various goals.

Role of a wealth manager

A wealth manager can devise tax strategies at different stages for investors:

a) Tax breaks at the time of investing

Investments in certain investments such as ELSS (tax-saving equity mutual funds), PPF, etc get you the benefit of tax deductions of up to Rs 1.5 lakh in a financial year.

b) Tax on the income earned

In the second stage, income earned from your investments could be taxed. For instance, interest earned on the bank fixed deposit is taxable at 30% for those in the highest tax bracket. By diverting such investments into the growth option of a debt fund, taxes are minimized. LTCG tax of 20% is applicable if debt funds are sold after three years and after providing for indexation. By deferring taxes, you also compound your wealth over the long term.

c) Tax at the time of sale

LTCG taxes are to be paid for stocks and mutual funds sold after a year which is currently at 10% of gains over Rs 1 lakh. So, by staggering sales over multiple financial years, you can save on taxes. Similarly, securities held at a loss can be strategically sold off in a year to set off gains made in another. Such investment strategies are often used by those nearing retirement to rebalance their assets in a tax-efficient manner.

Need for review

Moreover, investment strategies are not set in stone as the tax regime keeps changing and goals need a revisit periodically.


Tax planning is an integral part of goal-based financial planning and its success. If you are unsure of what tax changes could mean for your taxes or which investment strategies to apply, consult a reliable wealth advisor.