Advertisement
Taxation

How Investment Can Help You to Save Tax in 2020?

Share
Advertisement

How Investment Can Help You to Save Tax in 2020? Struggling to save tax with your current investment plan? Read this article and learn how your investment can help you save tax in 2020.

How Investment Can Help You to Save Tax in 2020

How Investment Can Help You to Save Tax in 2020?

We all want to save tax on our annual income and the government allows legitimate ways for us to avail tax benefits in India. You can save on income tax by investing your money intelligently in one or more investment plans.

Some examples of such plans are as follows:

Equity Linked Savings Scheme (ELSS):

The Equity Link Savings Scheme allows you to invest up to 1.5 lakhs a year into mutual funds for a very short lock-in period of only 3 years. The amount is completely deductible from your taxable income and can be redeemed after 3 years. It offers high returns of up to 12 percent per annum. This investment, however, is subject to market risks as it invests in equities and depends on the fluctuating market.

The Equity Linked Savings Scheme (ELSS) can be invested using both SIP (Systematic Investment Plan) and lump sum investment options. There are 3 years lock-in period, and thus has better Liquidity compared to other options like NSC and Public Provident Fund.

Public Provident Fund (PPF):

The Public Provident Fund is a long term investment instrument by the government of India wherein; investments made can be deducted from the taxable income and interest on such investments is absolutely tax-free. The rate of interest is currently at 8% up to a cap of Rs. 1.5 lakhs. The lock-in period in 15 years, however, partial withdrawals are allowed after 7 years.

Features of Public Provident Fund (PPF):

The public provident fund is established by the central government. One can voluntarily open an account with any nationalized bank, selected authorized private bank or post office. The account can be opened in the name of individuals including minors.

  • The minimum amount is ₹500 which can be deposited.
  • The rate of interest at present is 7.9% per annum (as of August 2019).
  • Interest received is tax-free.
  • The entire balance can be withdrawn on maturity.
  • The maximum amount which can be deposited every year is ₹150,000 in an account at present.
  • The interest earned on the PPF subscription is compounded annually.
  • All the balance that accumulates over time is exempted from wealth tax.

Unit Linked Insurance Plan (ULIP):

The Unit Linked Insurance Plan offers a dual purpose. It acts as an insurance policy as well as an investment policy. The amount paid by the investor partially goes into the person’s life insurance while the rest gets securely invested. The lock-in period for ULIPs is five years.

Advertisement

A portion of the premium goes towards mortality charges i.e. providing life cover. The remaining portion gets invested into funds of the policyholder’s choice. Invested funds continue to earn market-linked returns. Unit Linked Insurance Plan (ULIP) policyholders can make use of features such as top-up facilities, switching between various funds during the tenure of the policy, reduce or increase the level of protection, options to surrender, additional riders to enhance coverage and returns as well as tax benefits.

National Savings Certificate (NSC):

This is a scheme launched by the government of India to inculcate the habit of saving amongst the common man for the ulterior benefit at the personal as well as the national level. It currently offers an interest rate of 7.9 percent for a lock-in period of 5 years.

It is best to start planning your investments at the beginning of the financial year so as to avail the most benefits from it. Delaying it will not help you make the most of it.

It is part of the postal savings system of the Indian Postal Service (India Post). These can be purchased from any Post Office in India by an adult (either in his/her own name or on behalf of a minor), a minor, a trust, and two adults jointly. These are issued for five and ten-year maturity and can be pledged to banks as collateral for availing loans. The holder gets the tax benefit under Section 80C of Income Tax Act, 1961.

Keep the following pointers in mind while deciding your investments for the year:

  1. Calculate the tax-saving expenses you have already invested in such as insurance premiums, home loan repayment, educational expenses of children, EPF contributions, etc.
  2. After deducting this amount from 1.5 lakhs, see how much balance amount is remaining for you to invest.
  3. Choose a tax saving instrument depending on your requirements such as the rate of interest you are expecting, the lock-in period that you are willing to block your money for, the amount of risk you are willing to take, and other such factors.

Keeping the above factors in mind, you can successfully invest the 1.5 lakh limit that is allowed under section 80C. Investing your money in a safe scheme to avail maximum benefit requires expert financial guidance by financial advisors such as Motilal Oswal. Thus, for a smooth investment process engage in a Demat account opening, and then the financial experts will guide you in finding the Top Performing Mutual Funds. You will be benefited thriugh knowing that “What Does DRN in Demat Account Mean?

See Also.

Other Articles You Might Enjoy.

How Investment Can Help You to Save Tax?

Advertisement
Advertisement
Mohammed Ahaduzzaman
Advertisement