A Millennial’s Guide To Tax-Saving Investments

By Medha Roy Chowdhury | January 25, 2019

Are you a juvenile earner looking for ways to save tax without denting your pocket? We’ve got a few tax-saving investment options simplified for your benefit.

A Millennial's Guide To Tax-saving Investments

Before we begin, let’s get to know who ‘millennials’ are. Those born during the 1980s to early 2000s fall into this category. Wondering why we’re talking about this generation? Well, if you’re a millennial, and there’s a good chance that you are, then it’s about time that the responsibility to run the world will gradually fall on your shoulders. Which is why, we as millennials, should be prepared to assume the mantle.

When young adults take charge of their finances for the first time, they are met with one of the bitterest truths of life. Financial literacy is seldom taught in school.

We get it. When you’re young, financial priorities such as planning and saving up for your future don’t top your list. On one hand, you are shouldering new responsibilities, and on the other, you want to have a great time. We understand that for most millennials, investing can be quite messed up.

Additional Reading: Stocks VS Mutual Funds – Which One’s A Better Choice For Millennials?

If you don’t want to block the major share of your hard-earned paycheck, this article is for you. First things first, tax-saving investments are great. Why? Because they have twin advantages. Not only do they help you reboot financially by growing your wealth, they also allow you to claim tax exemptions.

Becoming financially independent is what defines millennials. But independence of this sort should have more to do with building wealth through long-term plans rather than frugal existence. This is where investments come into the picture. And what can be better than investments that help you save tax?

Additional Reading: Are Your Investments Tax Efficient?

It is important that you understand the significance and benefits of these investments if you don’t want to pay a huge chunk of your money in taxes every year. Keep in mind to choose a product based on your financial objectives and risk appetite. Let’s take a look at some of the choices you have.

  • House rent allowance (HRA)

Moving out of home is not an unheard of concept for millennials. Most of us have had to shift to an entirely different city for educational or work purposes. Which means that a large number of millennials have taken up accommodation far away from their home town.

Sad as it may be to have uncontrollable cravings for home-cooked food, staying in a rented place does have its perks. One such benefit is that of tax-savings opportunities.

HRA is paid by employers to their employees as a salary component. It provides tax benefits for the rent that employees pay for accommodation year round.

Here’s how you can avail the HRA tax exemption.

  • You either need to hand in your rent receipts for each month of the financial year or submit your rental agreement.
  • Quoting your landlord’s Permanent Account Number (PAN) is mandatory if the monthly rent you pay leads to an excess of Rs. 1,00,000 annually. More simply put, if your monthly rent is Rs 8,333 and more, submitting your landlord’s PAN is a must.
  • Remember that in the absence of a rental agreement, a duly signed declaration from your landlord will work too.

Additional Reading: Employer Not Giving You HRA? You Can Still Claim It

  • Education loan

A large section of the millennial population has just crossed the threshold of education to step into employment. There is a fat chance that most of them have taken an education loan at some point for pursuing higher studies.

If you are one such millennial and are employed now, don’t ignore the deduction you can claim on your Education Loan. Section 80E of the Income-tax Act, 1961 enables you to avail a deduction on the interest you pay on your education loan.

The entire interest paid from your taxable income can be deducted, and this is allowed for a period of 8 years. Don’t forget that the principal amount does not qualify for any tax deduction. Also, this deduction can be claimed only by the individual paying interest on the loan for himself/herself or his/her spouse.

To claim this deduction, you will need to obtain a certificate of the interest paid from your lender and submit it as an archived proof to your employer.

  • Public Provident Fund (PPF)

PPF is one of the easiest conventional avenues of investment for beginners since it comes with low-risk and sufficient returns of 7%-8% that is completely exempt from Income Tax under Section 80C.

PPF offers plenty of flexibility. For instance, the interest paid on PPF is tax free.  PPF accounts can be opened by anyone with a vision for long-term investments.

PPF is among the safest investment choices for an Indian millennial as funds invested remain with the country’s government. This makes PPF one of the most secure options for millennials who are skeptical about investing their money in riskier instruments.

Additional Reading: All About The Public Provident Fund (PPF) Scheme

  • Life Insurance

Life Insurance premium also falls under Section 80C. The premium paid on Life Insurance is tax deductible. Life Insurance premiums are determined based on an individual’s age. The younger one is, the lower the premiums charged will be.

Millennials should buy a policy early not only to avail a long-term, low-cost cover, but also because they can enjoy tax benefits on the premium paid. The two-way benefit of Life Insurance makes it one of the most suitable instruments of tax-saving investments for millennials.

Additional Reading: All You Need To Know About TDS On Life Insurance Policies

  • National Pension Scheme (NPS)- 8% to 10% returns

A study has confirmed that about 80% of millennials worldwide consider wealth as their foremost goal. While growing your wealth is important, retirement planning is far more crucial.

Launched by the Indian government, NPS is a contribution scheme offering a range of investment options to salaried professionals. It helps individuals decide where to invest their pension wealth.

Why should you invest in NPS, you ask? Well, for one, it provides a considerable post-retirement income. Secondly, in addition to being a tool for retirement planning, it offers safe market-based returns over the long-term, thus providing security post-employment.

Additional Reading: Opening An NPS Account Online

Today, young millennial investors are faced with the challenge of investing small amounts and not paying fees that are higher than the returns generated by their savings.

Additional Reading: Missed The Deadline For Tax-saving Proofs Submission? Here’s What You Can Do

These tax-free investments mentioned above make sure that returns on your investments do not dry up owing to the taxes you have to pay. Looking forward to building a solid financial portfolio? Why not invest in Mutual Funds on BankBazaar?

All information including news articles and blogs published on this website are strictly for general information purpose only. BankBazaar does not provide any warranty about the authenticity and accuracy of such information. BankBazaar will not be held responsible for any loss and/or damage that arises or is incurred by use of such information. Rates and offers as may be applicable at the time of applying for a product may vary from that mentioned above. Please visit www.bankbazaar.com for the latest rates/offers.
Category: Tax Planning UCN
Medha Roy Chowdhury

About Medha Roy Chowdhury

Square peg in a round hole, Medha reads whenever she gets the chance to. She is happiest when travelling and dreads having to choose between the hills and the sea. Dog lover at heart, she is in pursuit of adopting a few canine friends someday. Weird as it may be, she bakes when stressed. Previously a Market Research Editor by profession, she takes a keen interest in finance. When she is not reading, you’re sure to find her with her ukulele.

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