Confused about which investment option will help you save taxes and build wealth? We’ve listed five smart ways to help you invest better and make your way around the ordeal of tax-saving easy.
For many of us, anything related to tax is something we want to put off for later. However, taxes are as certain as day giving way to the night. Does the annual ritual of tax-savings investment declaration and filing Income Tax Returns (ITR) give you sleepless nights? Don’t worry. We’re here to help.
Many of us think of tax-saving investments as a cumbersome task and begin giving it a serious thought only at the end of the year. By then, it is usually too late to start investing and reaping benefits.
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One of the common mistakes made by investors is choosing an avenue of investment just for the sake of enjoying tax benefits. As a thumb rule, a prospective investor must look out for these four criteria before investing.
- What will be the maximum tax savings he/she can enjoy?
- What is the degree of risk involved?
- Is it a low-cost investment?
- Are the returns substantial?
Additional Reading: Tax-Saving Options Beyond Section 80C
Now that you know what to look for before making an investment, let’s move on to five of the best investment options that not only help you save taxes but also fetch superb returns.
This is one of the most popular investment choices. Not only does it provide tax benefits, but its utility as a means to safeguard your family’s future brings it to the top of our list.
So, how is Life Insurance a good investment strategy? Well, consider this. The premium you pay towards the Insurance cover can be deducted from your income. This way, you inevitably bring down the taxable portion of your income.
What’s perhaps even better is that, in the event of your untimely death, the sum received by the beneficiary is not taxable.
Additional Reading: Everything You Need To Know About Life Insurance
The Equity-Linked Savings Scheme (ELSS) is a form of diversified equity mutual funds. Under Section 80C of the Income Tax Act, 1961, the amount invested in ELSS qualifies for tax benefits.
You can invest up to a limit of Rs 1.5 lakhs annually, and the sum invested has a lock-in period of 3 years.
It’s important to note that returns in ELSS schemes are not fixed and are unassured. They depend on how equity markets perform.
Investing in ELSS will not only help you achieve long-term savings and tax benefits, but will also generate a tax-exempt income.
Additional Reading: 8 Huge Mistakes To Avoid While Investing In ELSS
The Unit-Linked Insurance Plan (ULIP) is a compound product. It is a combination of investment and insurance. It offers protection in the form of life insurance and helps drive one’s savings into various investment assets.
ULIPS are long-term investment schemes and come with a lock-in period of 5 years.
The fund that you will accumulate on exiting the policy, either after 5 years or upon maturity, is tax-free.
Additional Reading: All You Need To Know About The Types Of ULIPs
If thoughts about life after retirement take up most of your time, this saving scheme is for you. This instrument for investment is well-known for its flexibility and low-cost structure.
Yes, you can invest a huge sum too. Low-risk investors can make an investment of a minimum amount of Rs. 6,000 in installments of Rs. 500.
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The Public Provident Fund (PPF) Scheme is a special favourite for many investors. The principal and the interest earned have a guarantee and returns are tax-free.
You can invest a sum as low as Rs. 500 to as high as Rs. 1.5 lakh. The highest investment limit is Rs. 1.5 lakhs. In addition, you can open a PPF account in a bank or a post office. This saving scheme is best suited for self-employed individuals or those who aren’t covered under the Employee’s Provident Fund (EPF).
Issued by the Central Government, PPF is a long-term saving scheme. Falling under Section 80C, the contribution made towards PPF is subject to tax exemption. Also, the interest that is earned on PPF contributions is tax-free. Intrigued? To know more, click on the link below.
Additional Reading: All About The Public Provident Fund (PPF) Scheme
For starters, try beginning your tax-saving investment planning at the beginning of every year to make a wise judgment and avoid investment mishaps.
Additional Reading: Missed The Deadline For Tax-saving Proofs Submission? Here’s What You Can Do
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