In India, most of us perceive tax saving investments only as a way to avail tax deductions on the contributions made, while neglecting their other benefits. Hence, a large number of salaried taxpayers start very late in the year with their tax-saving investments rather than planning well in advance.
When you plan with your tax savings, you get ample time to select an investment scheme that suits your appetite for risks and financial goals. Also, you can perform due diligence before investing in an instrument. Thus, you can not only avoid investing in a less profitable scheme but also get the flexibility to plan your payments through the year. For example, if you are investing in a ULIP, you can systematically invest in the plan through monthly or annual payment modes. Here are some insights on how to save income tax while maximising your investments to supplement your life goals, read on.
Goal: Saving Tax
For tax saving purposes, Unit Linked Insurance Plans (ULIPs) is an attractive option. Any contribution that you make in a ULIP is tax deductible under Section 80C of the Income Tax Act 1961, for a maximum of Rs. 1,50,000. ULIPs are an investment cum insurance plan, in which a portion of the premium is invested into a variety of market-linked equity and debt instruments, while the remaining amount is used to provide life cover for the entire policy period.
Also, the investment benefits of ULIPs are described below:
- The death benefit that your beneficiary receives is tax-free
- Upon maturity of the ULIP, you will receive the value of the investments or the sum assured, whichever is higher (this amount is tax-exempted under Section 10(10D))
- Any partial withdrawals that you make after the lock-in period completes, are entirely tax-free
Goal: Early Retirement
You must start planning for your retirement as soon as you start earning a stable income. That said, if you are looking for early retirement, the key is to build a significant corpus through capital appreciation of your investments. This is possible when you opt for an investment tool that suits your risk appetite and offers higher returns than those from traditional savings options.
If you are ageing between 20 and 30 years, you should start investing in an investment plan that allows you to allocate the more significant proportion of premium into equity funds. Though equity funds are more prone to the fluctuations of the money-markets, they tend to outperform every other asset class in terms of returns over the long-term.
If you wish to invest more conservatively, you can look to invest in debt funds or large-cap funds that invest in reputable companies with strong fundamentals.
Goal: Child’s Higher Education and Marriage
Education nowadays doesn’t come cheap, and with a barrage of unprecedented expenditures in the form of private schools, tuitions, extracurricular activities, professional degrees and hostel fees, you will put a severe dent on your savings.
Fortunately, you can prepare well in advance to fend off any such financial contingencies by purchasing a child plan. Depending on the investment horizon, you can choose the policy duration between 7 to 17 years to build a corpus. Reputable insurers like Future Generali offer you the option to avail guaranteed payouts depending upon your child’s education milestone.
Also, you can protect your child’s future even in case of an unfortunate event in your life such as death or permanent disability. Further, your investments into a child plan are also eligible for tax deductions as per prevailing tax laws.
Each one of us has aspirations in life. These goals not only take us ahead in life but also inspire us to work towards shaping our future. Despite our differences; however, our goals are often not that different. For example, many of us want to own a home, buy a car, ensure that our children receive the best possible education and build a large corpus for retirement, and so on. The only way that we can fulfil these goals is by diligently planning our finances and investing in instruments that avail capital appreciation over the long-term. That said, we also need to maximise our tax savings through investments into tools such as life insurance, ULIPs and critical health insurance.