Tax planning is no child’s play. For the same reason, you could consider engaging a financial adviser who would guide you through the entire process, choosing the tax saving instrument, investing, and then monitoring the performance to make sure you do not go astray.
By composing the right mix of investments for your portfolio, you can exempt more of your income from tax and ensure that you are receiving optimal returns. Section 80C of the Income Tax Act offers a broad range of options, each suited to a different need. However, an Equity Linked Savings Scheme (ELSS) or tax saving mutual fund schemes provide investors tax benefits combined with long-term wealth creation through equity exposure and comes with the shortest lock-in among all tax-saving instruments.
Your Tax Saver
Towards the end of the financial year, most of us start chalking out our tax plans, or the lack of one. If you are a salaried professional, you might get a reminder from your accounts department and if you are self-employed, your accountant would remind you to ‘do your taxes’. Either way, it ends up being at the eleventh hour.
While some of us may have done the smart thing by planning early, the majority might have not.
However, this is merely a ‘tax saving’ exercise and cannot be called ‘tax-planning’. Tax planning is all about planning in advance, which involves evaluating your overall tax strategy and implementing it before the year-end.
In this way, you can make the most out of your tax saving opportunities, which would eventually help you accumulate wealth over the long-term. Tax Planning is an essential part of financial planning and deserves the rightful time and effort.
So when we think about tax-saving as a goal, various options come to mind, that qualify under deduction under Section 80C of the Income Tax Act, 1961, which allows deduction up to Rs. 1,50,000. The options available under Section 80C are as follows:
1. Market Linked
– Equity Linked Savings Scheme (ELSS)
– Unit Linked Insurance Plan (ULIP)
– Nation Pension Scheme (NPS)
2. Fixed Income
– Public Provident Fund (PPF)
– National Savings Certificate (NSC)
– Tax Saving FDs
– Senior Citizen Saving Scheme (SCSS)
– Employee Provident Fund
– NABARD Bonds
– Life Insurance Premium
– Repayment of house loan (Principal)
– Children’s Tuition Fees
The answer however varies, from person to person, objective to objective, and as per the risk appetite.
With the above tax saving instruments available, the obvious question that arises in our minds is, which option should I opt for? Should I select one of above or should I invest some chunk of money into all or some of the above to claim the deduction? Well, the answer for this question is skewed as every individual has different set of requirements and risk appetite. However, it’s critical, not to just look at the tax saving criteria of the avenue under consideration, but also it’s potential to generate higher returns.
An Investor Education Initiative
Disclaimer – This document is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. This document provides general information on performance; financial planning and/or comparisons made are only for illustration purposes. The data/information used/disclosed in this document is only for information purposes and not guaranteeing / indicating any returns. Investments in MFs and secondary markets inherently involve risks and recipient should consult their legal, tax and financial advisors before investing. Recipient should also understand that any reference to the indices/ sectors/ securities/ schemes etc. in the document is only for illustration purpose and should not be considered as recommendation(s) from the author or L&T Investment Management Limited, the asset management company of L&T Mutual Fund or any of its associates. Recipient of this information should understand that statements made herein regarding future prospects may not be realized or achieved. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.