Design Credits: Rakesh Mohan
Most people usually wait until the very last moment every year before scrambling to get their tax saving investments in order. Don’t be like those people! Instead, start at the beginning of the financial year, and you could save yourself from a lot of grief.
Now, you might be wondering how to put an effective tax plan together for your investments. If you know what your different options are, this won’t be too difficult. The first thing you need to know is that there are different small-term and long-term investment options you can opt for. These not only help you save tax but yield good returns as well. And not just that, these small investments if started at an early age, will not only help you secure your future, they will take care of your retirement planning as well!
So, what are the available investment options that will help you secure your future?
Public Provident Fund
If you have just started earning, try investing some money in the Public Provident Fund (PPF). You can start with investing an amount as low as Rs. 500. With PPF you earn returns up to 8.75% (this changes every year) and of course, it’s tax free. You should also know that it’s backed by the Government, so it’s less of a risky investment as well. What more could you ask for?
National Savings Certificate
Another great investment option for salaried individuals is a National Saving Certificate. Here, you can choose to invest anything between a Rs. 100 to a few thousand. The tenure can be five or ten years and the interest rates are as high as 8.5% for five years and 8.8% for 10 years. (this changes every year)
NSCs are tax free and fall under the Section 80C of the Income Tax Act. However, the interest earned on an NSC is taxable. So, instead of withdrawing your money and paying tax on the interest, re-invest the same interest and continue enjoying the tax benefits. Cool idea, isn’t it?
The government has recently launched a tax saving option of up to Rs. 10,000 which you can avail of by simply opening a Savings Account with any bank. Though interest rates are generally not very high, you save on your taxes.
Paying small premium amounts (monthly, quarterly or annually) towards any kind of Life or Health Insurance policies, will not only help you save taxes but secure your family and help you save on medical expenditures as well. Remember ‘health is wealth’, so choose a Health Insurance policy or Life Insurance policy that best suits your needs. It wouldn’t be a bad idea to invest a little extra and cover your spouse, children and parents as well!
Opening a Fixed Deposit in any bank is also an excellent choice of investment as it will help you earn great returns. The best part, you can open a Fixed Deposit account for a minimum of seven days to a maximum period of 10 years. Depending on the tenure and the bank policies, you can earn up to 9% interest on a Fixed Deposit account.
Did you know you can open a Recurring Deposit with just Rs. 10 at any bank or post office? It’s a smart regular investment which will help you earn a decent amount of interest. The tenure can either be six months or you can choose to invest up to 10 years.
A small investment with fixed returns, Recurring Deposits might not help you save a lot of tax, but a systematic investment never hurt anybody.
Systematic Investment Plan (SIP)
If you aren’t completely risk averse, then a Systematic Investment Plan (SIP) might be just the thing for you. Your money will be invested in specific Mutual Funds which will help you earn good returns and you will be eligible for tax benefits under the Equity-Linked Savings Schemes as well.
So, like we said earlier, the financial year has just begun, so, pick one or all of these investment options and start investing! This way, you won’t have to worry about your tax being deducted and you’ll be thanking us when those returns come rolling in!