Tax-paying season is always a busy time for most people, with everyone resorting to last minute investment options to help save taxes. However, in surveys conducted, it has been observed that Indians, especially young Indians in the age group of 20-29 years, are not making the right tax-saving decisions and in fact, are paying more tax then they should. This is due to the fact that they are oblivious of when to start tax saving investment plans. So how should you plan? Is there an investment structure that you must follow? Read on to know more about how to better start tax saving investment.
The Basic Problem: Making Investments in a Rush
For most of us, paying taxes is a once in a year event that needs to get done with at the earliest. However, if you analyse the tax that you pay and the amount that you could have saved, you will reconsider the investments that you make. There are several short-term and long-term investment options that will yield good returns besides helping save taxes, which is the basic aim.
When to Start Tax Saving Investment Plans?
Instead of holding up till January or February, start tax saving investment as the new financial year begins, as it gives you the time and flexibility to design your investments on a well-calculated basis. Also, you will have a year’s time to review the investments made to make any reforms if required.
Investments That You can Consider
Public Provident Fund (PPF)
When you start tax saving investments early, a PPF is a good option, as you can start investing with as little asRs 500. There are several advantages of investing in a PPF, which include the lower risks associated with as it is government backed, guaranteed returns and tax free withdrawal once it matures. Although the returns might not be very high, PPF’s are one of the best investment options to begin investing with for the tax season.
Invest in Insurance Policies
This is one of the ideal ways to help save taxes as well as secure the future and the health of your family members. You can invest in a health or life insurance policy and the premiums you pay towards either are eligible for tax deductions.
Equity-linked Tax Saving Scheme (ELSS)
Once you know when to start tax saving investment plans, you can explore several investment options, including ELSS, which is an attractive short-term plan as the lock-in period in only three years. Hence, it will not only act as a tax saving instrument but is ideal if you have any short-term goal to achieve.
Unit-Linked Insurance Plans (ULIPS)
A good tax saving investment for the long term, the premium paid is invested in the debt and equity markets. If you are ready to make an investment for 10 years or so, you can consider investing in ULIPS.
Diversify your investments
Once you know which investments are ideally suited to your tax-saving needs, you must survey and see if your investments are diversified across categories. Commonly, most portfolios are debt heavy, owing to investment in fixed deposits, provident funds etc. In that case,you can consider investing in mutual funds, which are inclined to equity markets. Again, if your investments are equity heavy, you can consider investing in products like PPFs, which are fixed-income products. In short, the debt-equity ratio must be balanced for the optimum usage of your money.
Understanding Section 80C is an important part of taking good tax-saving decisions. It not only takes investments into consideration, but expenses as well. Your children’s tuition fees, interest on home loans and education loans, medical expenses and even donations made towards research or rural development are deductible as well.
So the earlier you review your tax portfolio the better it will be for saving your taxes!