Every individual should be prepared and ready to face any shortcoming or crisis. We do not know what lies ahead of us and therefore must take adequate measure to make it smooth sailing. It not only enables us to gear ourselves to avoid the unlikely situations, in terms of financial aid but also empowers our future. Nevertheless, investments are a safe bet to seal our fates from the enormity of tax deduction.
Investments should be handled upon meticulously so that one can reap the tax exemption benefits. To maximise the benefits of the investment, it should always be ensured that it is covered under the available tax savings investment.
1. Investments help in Tax exemption
It is known to us that government levies some tax on the employed and the self-employed sections of the society. There is a discrete tax incurred on the various income slabs.
In today’s world, salaries cut out to the employed for the designated tasks are meagre in comparison to the increasing inflation rate. As soon as you start earning, you are exceedingly faced with this challenge to meet our day-to-day expenses and growing obligations.
The working population has to cogitate on the decrees, regulated upon them by the government, in the form of tax and how to surpass these bottlenecks and utilise the situation to an extent in their favour. A surfeit amount of what you earn, goes to the government to work towards the development and welfare of its citizens. So it becomes advisable for us to make some sort of investment in order to alleviate tax. The desideratum of investment helps to fulfil the daily objectives of a commoner.
There are a myriad of investment options one can find such as Public Provident fund, Mutual Fund, Equity shares etc. All these investment options come with short-term or long-term lock period. While deciding to invest, all the financial commitments must be taken into consideration.
If you are ready to lock money for a longer period of time, long term options like PPF and NPS are good and beneficial. On the contrary, if there is a financial need in near future, better to go for short term investments like NSC and FD. If one is willing to take risks, then mutual fund through ELSS can take you a long way and watch your money grow in no time.
Long term investments like PPF and NPS helps us save tax yearly up to Rs 1.5 lac under Section C of the Income tax. The maturity amount and the returns obtained from PPF investment is also exempted from tax deduction at the time of withdrawal. No tax is imposed upon partial withdrawal of amount or premature closing in PPF.
2. Caters to sudden financial needs:
Health insurance plans are also one way to tax saving investment alternative. The drawback to this is it does not help us in getting fruitful returns until you encounter some health-related issue. However, one cannot deny the humongous assistance it renders in ill-fated hours like accidental coverage, hospital reimbursement and untimely death of a family member.
Have you ever landed up in a situation where you are in a hospital and you need an emergency surgery but have not enough resources to back it up owing to lack of monetary aid?
Or you have met heavy losses in a business enterprise and in dire need of money. One should be always equipped to face such unprecedented cases in the future. The answer lies in putting money into smart investments. The effective solution to this would be adopting policies that help you overcome such situations and you get a bonus for the same by saving tax. The catch here is investing in correct health policies that give you a secure future and at the same time, it does your tax saving; so you save tax and you have money ready for any future mishaps or untoward accidents.
It also helps you plan for your dependants or loved ones as many of the investment policies cover dependants too.
Be it the treatment of your old parent or the delivery of your first baby, these investments help you stay put in all these urgent situations and you can be proud of being a great father/ husband/ son.
Health insurance plans lets you claim tax deduction amounting to Rs 25,000 in general (and 30,000 in case of senior citizens) and is covered under Section 80 D.
3. Returns for a higher lifestyle:
Live life king size. It is one wish for each human and there is nothing wrong in dreaming of it. But it can be achieved only when you have an exponential financial growth pattern. This growth is possible only when your current assets are manifold.
Investments in Mutual funds and stocks can play a major role to increase your assets along with saving your money in taxes. It aids in maximising benefit of the income earned and adds to the subsequent returns in later stages of life. Whether you want to go on a vacation to an exotic landscape or purchase a branded car, life can be all rosy if we carry out investments.
Mutual funds, run by equity and stock market, also allows us to be free from tax liability. Contribution made towards Equity linked Savings Scheme (ELSS) enable us to save tax amounting Rs 1.5 lac under Section 80C. Generally, other forms of equity funds available in the market cannot be claimed for tax saving investment.
ELSS investment is a paperless and automated method. It means one does not have to go through the hassle of remembering the date to make the deposit. The cash is automatically deducted from his/her account based on the type of equity mutual fund one wishes to invest. One can quit from this sort of investment at any given point of time with just a simple click.
4. Reinforce future planning:
Future planning is one aspect where investments can play a great role in shaping up the career choices of your children or milestones of one’s lifetime. It financially enables us to steer clear of any obstacles or hindrances that could act as roadblocks in the days to come. Having a better propaganda to the crucial events of our life such as child education, saving for marriage leads to a strong and consolidated future. Saving money and investing in various policies and funds provide us good returns and safeguarding our life for a better tomorrow.
National Pension Scheme is regulated by the PFRDA with an objective to provide all the citizens of India to save a fraction of the amount earned during his lifetime. This will help the individual during the old age to remain financially independent. It generates great fiscal returns as it gives the choice over asset allocation and types of pension funds one would like to invest depending on the equity.
One investing in NPS can avail tax benefits of up to Rs 2 lac (Rs 1.5 lac lac under Section C and an additional Rs 50,000 under Section CCD)
National Savings Certificate helmed by the government of India is offered across all post offices. According to the current rates uploaded on India Post, the rate of interest on NSC is 7.6 % and is compounded annually. An investment of Rs 1.5 lac is eligible for tax exemption under Section 80 C of the Income Tax Act.
5. Provides basic amenities of life such as housing:
Loan is an investment. Sounds contradictory but it is true. Borrowings can act as tax savings investment in case of home loans. Having your own home is the dream of every individual and a necessity in the modern world. Our financial system helps you in fulfilling this dream with the concept of home loan. It works well for the people who are living on rent. Even people having their own homes and looking out for a better home, can also be benefitted from this. Home loan becomes a huge investment as a major part of loan is exempted from the tax. So, though it is a borrowing, yet it contributes to your tax savings investment.
It becomes a costly affair when you are planning to buy home in metros or tier 1 cities as prices are a little high. But considering the rent in such cities, it becomes a win-win deal.
What makes home loan a great investment is the exemption of the interest component under a different section 24 B. There are some eligibility conditions associated though. The principal amount can be claimed under section 80 C contributing to 1.5 lac limit along with other insurance and policies. The additional part of exemption comes under section 24 B where 2 lac can be claimed. You need not wait for a home to be built completely or you could even rent out your house. Interest paid in all the conditions can be claimed immediately. Even the stamp duty is eligible for tax exemption.
When to consider home loan as an investment option is a big question. To answer this, one must evaluate the total tax paid for a year along with the rent paid. Typically, home loans are opted for 20 years and EMI is approximately 0.9 % of the loan amount. So for a 50 lac loan amount, the EMI would be close to 45,000. Now check the amount of tax that is paid for about 2 lac (this can be exempted if the home loan is opted) plus the rent. Also, the cost of the current house which can be used as a down payment. More down payment means less interest payable, hence saving more money. Most of the banks in country are offering home loans at almost same interest rate and in different payment options.
To claim the home loan exemption, one must be possess the ownership of the home either solely or on joint ownership. Joint home loans are better deals as the principal and the interest component can be claimed by all the person, registered as owners of the home.
To conclude, consider home loan as an investment option if you are paying huge tax and rent at the same time, or planning to move to a house with better facilities.
The key for the maximum benefit is to make more down payment and register as co-owners if possible.
Overall, Investment options like home loans are considered smart investments.
Moral of the story: There are multiple players in the market who are offering different types of returns based on risk and the duration of investment. High risk investments have higher returns but prone to losses. Long duration investments have definite decent returns and are safe from losses. It is your choice to go for any one of these but the objective should be how to choose them wisely.