Tax saving Investments - Plan your Tax saving

  • Posted By : reliancesmartmoney.com
  • Saturday Dec 29, 2018

How to plan your Tax-Saving Investments?

Paying taxes is an important financial obligation. As you do it, you need to be aware of different ways that can help you save taxes and at the same time build wealth over time. In addition to it, to carry out such an important responsibility, it is important to have an efficient tax-saving investment plan to ensure maximum savings for your long-term financial needs. There are multiple tax-saving investment options available under Section 80C and are eligible for providing tax-benefits of up to Rs. 1,50,000. In addition to it, these investment avenues provide the benefit of creating wealth while taking care of tax liabilities.

Unfortunately, most of us wait till the end of the year to make a tax-saving plan and hastily make decisions whereas it should at the beginning of the financial year. It is recommendable to begin your investments in the first quarter of the financial year and spread your investments in a way that it can use the 80C limit. With an efficient plan, you won’t burden yourself at the end of the year and can fulfil your tax liabilities along with your long-term financial goals.

Factors to consider while making an investment

Before you begin planning your investments, it is important to decide which tax-saving investment option is optimal for you, otherwise, your returns will suffer. Hence, it is essential to consider some factors while making an investment.

  • Returns – Undoubtedly, ‘returns’ is one of the crucial factors that needed to consider while making an investment. Any investment plan should be first viewed of its returns over the course of time, which should meet your financial goals. Returns are tied with risks; hence, one should consider the risk appetite before proceeding to any investment instrument. Generally, tax-saving investments are divided into two broad categories: ‘Assured’ and ‘Market-linked’. PPFs, fixed deposits, and NPS are examples of assured tax-saving investment options meanwhile ELSS is a market-linked tax-saving investment instrument. Since there is a direct correlation between risk and returns, it is important to consider the investment instrument with returns that match your financial goals.

  • Liquidity – Before, you make your decisions, it is important to know – how liquid your investment is? Although any investment needs time to provide good returns, a certain amount of liquidity is required so you can have access to the money when needed. In choosing a tax-saving investment option, it is important to check for the lock-in period of the instrument. Some tax-saving investment options have a short lock-in period and provide higher returns. For instance, you can go for ELSS funds that have a lock-in period of just 3 years, the lowest among other tax-saving investment instruments.
  • Tax Benefits – Needless to say but the investment option you are gonna choose must be eligible for tax benefits under Income Tax Act, 1961. It is important to invest in an instrument which does not depreciate the value of your money at maturity and provide inflation-adjusted returns. Only then you can get the tax benefits and save the value of your money from eroding over time.
  • Investment Goals – If your goal is to receive tax benefits and getting assured returns in future you can choose tax-saving investment options that offer moderate returns and least-exposed to risks. But, if your goal is to get tax benefits and build wealth at the same time then you need to pick an investment instrument that gives the same tax deduction benefits but provide potential returns in long-term. ELSS fund is a good example of tax-saving investment instrument that allows investors to have the tax benefit of up to Rs. 1,50,000 and provide higher returns than other tax-saving instruments under Section 80C, Income Tax Act, 1961.

The next step is to calculate your income tax to ensure that you have the correct estimate. Below we’ve mentioned the income tax slab that can help first-time tax-payers.
Tax Slab for every residual Individual aged below 60 years and non-resident for AY2019-20:

Income Slabs

Applicable Tax Rates

Up to Rs. 2,50,000

Nil

Rs. 2,50,001 to Rs. 5,00,000

5% of the amount by which the taxable income exceeds Rs. 2,50,000

Rs. 5,00,001 to Rs. 10,00,000

20% of the amount by which the taxable income exceeds Rs. 5,00,000 + Rs. 12,500

Over Rs. 10,00,000

30% of the amount by which the taxable income exceeds Rs. 10,00,000 + Rs. 1,00,000 + Rs. 12,500.

Additional: -

  • For income of more than Rs. 50 lacs but up to Rs. 1 cr, the surcharge will be applicable at a rate of 10 per cent of the income tax. For income of above Rs. 1 cr, the surcharge will be applicable at a rate of 15 per cent of the income tax.
  • ‘Health & Education Cess’ at 4 per cent.

How to plan tax investments for the year

  • Firstly, check the tax-saving expenses you already have such as children’s tuition fee, EPF contribution, home loan principal repayment, insurance premiums, etc. You can also check for the claim benefits under Section 24 towards the home loan interest payment.
  • After calculating your expenses deduct the amount from Rs. 1,50,000 to deduce – how much to invest in? If the expenses are already covering the limit then you needn’t require to invest the entire amount.
  • Invest as per your risk appetite, financial goals, income levels, life stage, and not alone tax-savings. There are some popular options like ELSS funds, PPF, NPS, NSC, and fixed deposits, etc.

With this in mind, you can begin investing in the tax-saving instrument at the beginning of the financial year and spread your investments over the year. With this, you won’t feel any burden over your shoulders at the end of the year and will make better-investing decisions.

Benefits of Early Investments

If you ask any financial advisor, everybody will say the same thing – Start investing early! It is obvious since in investing in the early stage of your life you will have the benefit of an early headstart in the investing world. With the power of compounding and more years, you’ll be ahead of many other investors in terms of returns and making manifolds because of fewer responsibilities like children’s tuition fee, home loan, car loan, and other financial obligations.
Even if you make a mistake at the early stage of your life, you can bear the loss and still recover from it; but towards your retirement, this loss might be difficult to recover with all the responsibilities. At a young age, you will have plenty of time to learn and invest, giving you the benefit of making small investments.
Many investors aren’t aware of this but many investment instruments provide tax benefits. Investing at early-stage in such tax-saving investment options will allow you to get tax benefits and build wealth over long-term. Early investments will keep you ahead of inflation and build wealth.
In short, early investments will allow you to secure your future and achieve your financial goals to be financially independent in life.

Before you begin planning your investments, it is important to decide which tax-saving investment option is optimal for you, otherwise, your returns will suffer. Hence, it is essential to consider some factors while making an investment.

  • Higher returns in the long run – If you’re looking for high-return retirement options, Equity Linked Savings Scheme (ELSS) could be a good pick. These equity investments deliver good returns in the long run. They initially come with a lock-in period of three years. However, since you’re more likely to hold on to them for longer as part of your retirement plans, you might benefit significantly from the power of compounding.

  • Goal-oriented planning – A planned retirement, calls for a planned investing scheme. You can use online tools to help you choose the perfect investment to match your retirement goals.
    reliancesmartmoney.com has the RoboAssist tool to help you analyse your salary and financial goals and, choose the appropriate investment plan for you. This way you can be assured that your investments will provide adequately during your retirement.

  • Ease of investing – If you don’t have a lump sum to invest in one go, ELSS schemes allow you to invest through SIP (Systematic Investment Plan). When you opt for it, a fixed amount is deducted each month from your bank account to be invested in mutual funds of your choice. This gives you the benefit of easy and systematic investments.

  • Economical investment – Moreover, if you’re starting to invest early in life, you can start with a small amount too. You can opt for a SIP as low as Rs. 500 per month. Think of it as setting money aside for your savings, except that unlike a savings account, your money in mutual funds investment has the potential to draw higher returns.

  • Tax benefits – Investing in mutual funds can help build wealth for your retirement and save tax. Schemes like ELSS are tax-saving instruments. When you invest in ELSS, you can claim tax deductions under Section 80C of the Income Tax Act.

  • Transparency in investments – The SEBI has introduced regulatory norms that make it mandatory for asset managers to disclose fund manager compensation levels as well as manager investments in their funds. These critical guidelines help you know exactly how your investments are being used.


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