Going Beyond Insurance – How To Save Tax & Build Wealth

By | January 30, 2017

Going Beyond Insurance - How To Save Tax & Build Wealth

Have you zeroed in on the Investment instruments you are going to pick this year? If not, you better get started. You don’t want to leave the year’s most important money-related decisions for the last minute. You must quickly determine your tax liabilities and figure out which financial products will help you save on tax while offering you the best returns on investment.

If you are thinking of buying Insurance, you are on the right track in terms of saving tax. Life and Health Insurance should be integral components of your financial portfolio to protect you from unforeseen circumstances. They also fetch you tax benefits under Sections 80 C and 80 D of the Income Tax Act.

Additional Reading: Tax-Saving Investment Options Under Section 80C

If you’ve already bought your Life and Health Insurance plans, and are looking beyond those options, here are some alternative investment instruments that can help you not just save tax under Section 80 C, but also help you build long-term wealth.

Public Provident Fund (PPF): Considered to be one of the best investment and tax-saving options available, the PPF is also a highly tax-efficient investment option since your earnings are entirely tax-free, and your investments can be claimed as tax deductions under Section 80 C.

The current annual rate of return from a PPF account is 8%, which is relatively higher than most other small Savings Schemes. It allows you to deposit between Rs. 500 and Rs. 150,000 in a year. However, the scheme comes with a 15-year maturity period, with the option to make partial withdrawals from the seventh year.

Having a lock-in period, however, means that your investment is safe for any impulsive withdrawals you may want to make. You can even take a Loan against the amount from the third year onwards.

ELSS: This is an open-ended Mutual Fund which invests in the equity market. Returns from this fund are typically higher in the long run when compared to other fixed deposits such as PPF, bank deposits, government securities, corporate bonds, etc. The returns are automatically tax-exempt due to a three-year lock-in period.

According to the CRISIL – AMFI ELSS Fund Performance Index on September 30, 2016, ELSS funds have returned 17.01% in the last five years.

Additional Reading: How Is ELSS Different From A Mutual Fund?

Five Year Fixed Deposit: This one, as the name suggests, is a five-year-long investment option with banks and post offices. The amount invested is tax exempt under Section 80 C. However, the interest earned is taxable.

The interest rate offered by banks at the moment is 6.5% while the interest rate currently offered by post offices is 7.5%. These deposits allow you to invest any amount you prefer.

Additional Reading: How To Use A Fixed Deposit Calculator

National Pension Scheme: This scheme allows investors to invest up to Rs. 50,000 per annum. These deposits are tax exempt under Section 80 C. The fund is invested in both equities and bonds and you can either decide the proportion yourself or let the scheme choose it on your behalf.

The returns earned range between 6% to 15% depending on the mix of assets in the portfolio.

Additional Reading: Why Investing In NPS Is A Good Idea

National Savings Certificate (NSC): This is a five-year plan and any investment made towards it is tax-free. The returns are exempt from tax as well except for the interest earned in the last year of the term. Interest earned is usually around 8% annually.

Additional Reading: PPF Vs NSC: Which One’s The Better Bet?

Senior Citizen Saving Scheme: This is a long-term savings scheme for investors above the age of 60 years. Any investment towards this scheme is tax-free. With an interest rate of 8.5% per annum, the returns from the SCSS are also tax-free as long as the amount is less than Rs. 10,000 per year. If the interest earned is more than Rs. 10,000, tax is deducted at source.

Additional Reading: Taxation Of Post Office Schemes

Sukanya Samriddhi Scheme: With annual returns of 8.5%, this investment scheme is meant for maintaining funds for every girl child. The fund matures after 21 years and any investment made towards it is tax free.

Additional Reading: Sukanya Samriddhi VS Mutual Funds

Even though February is almost upon us, you still have enough time to calculate your tax liability and figure out your tax-saving and investment needs for the financial year.

Hopefully, you’ll pick some of the investment instruments mentioned above and save tax the smart way.

(The writer is CEO, BankBazaar.com)

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: Investments Yahoo

About Adhil Shetty

Adhil Shetty is the Founder and serves as the Chief Executive Officer of BankBazaar.com. Adhil has a Master’s degree in International Relations with a specialization in International Finance and Business from Columbia University in the City of New York, and a Bachelor’s degree in Engineering from the College of Engineering Guindy, Anna University. Adhil is an expert in Personal Finance (Car loan/Home loan and personal loan) and he majorly consults on investment and spends rationalization for the Indian loan borrowers. His guidance is number based with real time interest rate calculations and hence useful for consumer’s real time query.

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