On this episode of Query of Cash, we’ll reply that query and likewise speak about how it’s best to method your tax saving investments.
Final-minute choices
Somewhat bit on tax saving investments first, for brand spanking new buyers. If you’re nonetheless beneath the outdated tax system, you possibly can shield upto Rs 2 lakh a yr of your earnings from revenue tax by making investments that fall beneath part 80C or part 80 CCD (1) of the Revenue Tax Act. Part 80C means that you can save upto Rs 1.5 lakh a yr from taxes, in case you put money into an authorized checklist of investments that features insurance coverage schemes, tax saving deposits from banks, pension schemes, ELSS schemes from mutual funds, NSC, EPF and Public Provident Fund, NPS and different merchandise. It can save you one other Rs 50,000 in case you make investments extra sums in a NPS Tier 1 account.
So, the very first thing to do is to verify in case your EPF contributions for the yr already replenish your part 80C limits. In the event that they do, you needn’t take additional motion. However in case you don’t have EPF or whether it is a lot lower than Rs 1.5 lakh, then you definitely’ll have to consider different tax planning choices. If in case you have left your tax planning to the final minute, it’s best to not make investments unexpectedly in two sorts of merchandise – these with a really lengthy lock-in interval the place you commit to creating repetitive investments yr after yr, and people which carry excessive dangers. Due to this fact, it might be higher to keep away from insurance coverage schemes the place your cash can get locked in for 10-15 years or much more, at low returns. In insurance coverage merchandise you may be committing your self to a hard and fast premium for a few years.
ELS schemes from mutual funds are a often a superb possibility and carry only a 3 yr lock in interval. That is the bottom lock-in amongst tax saving schemes. However investing say Rs 1.5 lakh in these schemes as a lumpsum immediately, isn’t very advisable because the inventory market has run up loads and might appropriate shedding your capital. The easiest way to put money into ELS schemes is thru SIPs and never lumpsums. Should you actually have a lumpsum to take a position and little or no time to assume it by, chances are you’ll must go together with a tax saving deposit with a financial institution this yr. These carry a 5-year lock in and rates of interest vary from 6.5% to 7.25%. Do notice although, that the curiosity shall be taxed on the slab price.
Lengthy-term choices
It’s actually not a good suggestion to scramble within the final minute to finish your tax saving investments. All of us have solely a restricted means to save lots of. Due to this fact, it might be finest if we are able to match our tax saving investments into our total saving and investing plans. To do that, you will want to take a position recurrently in tax saving investments, as a part of your goal-based investing. To get probably the most out of your tax saving investments, you are able to do a number of of the next beginning April 1.
Arrange a month-to-month SIP in a superb ELS fund which can add as much as Rs 1.5 lakh a yr. There are additionally specifically designated retirement mutual funds with a 5 yr lock-in that are a superb wager for SIPs. Utilizing the SIP route reduces the dangers related to market volatility or a correction in equities, since you common your prices downwards if there’s a market fall.
Open a Public Provident Fund account together with your financial institution, and begin contributing Rs 1.5 lakh a yr. The PPF is a authorities backed scheme the place the curiosity is asserted by the federal government each quarter. This scheme is nice possibility for the debt portion of your long run investments as a result of the curiosity is market linked and is tax-free, a facility not accessible anyplace else. The PPF carries a 15-year lock-in although you might be allowed partial withdrawals after 7 years. Your PPF investments can range between Rs 500 and Rs 1.5 lakh a yr.
Open a NPS account and join SIPs such as you would with fairness funds. This can be a very low-cost, market-linked retirement scheme the place you possibly can select to put money into equities, company bonds or authorities securities (see our earlier video on NPS). You possibly can make investments something between Rs 1000 and Rs 2 lakh to save lots of taxes, within the NPS yearly. It is best to select between secure choices comparable to PPF and dangerous ones like NPS and ELSS, based mostly in your danger urge for food and the horizon over which you’ll maintain your investments.
(Host: Aarati Krishnan, Producer & Edits: Anjana PV, Digital camera: Bijoy Ghosh & Siddharth Mathew Cherian)
#Lastminute #tax #saving #choices #Query #Cash #Aarati #Krishnan #Episode