How to Invest your Money and save Tax
When you think of money,it gives you enough scope to focus on it.One of the most important part of money planning is tax planning.Tax planning is a part or financial planning.
Sec 80C offers many options and one should carefully choose options available such that it should appear as an investment not merely tax saving.Aligning tax saving with long term financial goal is the best way one can achieve dual targets.one of the best way to achieve financial goal is to SIP a fixed amount for longer duration’ say 15-20 years, in a tax saving ELSS(Equity linked savings Scheme).
ELSS vs ULIP
ELSS are equity linked and hence are riskly.So monthly SIP is the best option to invest in ELSS rather than investing a lump-sum at one go.Other Equity products like ULIP are also risky one ,more often when one is planning to invest a lump-sum at one go,but unlike ELSS, ULIP allows an alternate asset allocation where one has an option to put money in debt rather than equity and then later shift part of it into equity.Most firm allows 10-15 switches between debt and equity in case of ULIP.
National Pension System (NPS) is defined as contribution based pension system.There are two types of NPS accounts
- Tier-I account: This account does not allow premature withdrawal.
- Tier-II account: The account permits withdrawal.
The contribution made by a National Pension System subscriber in Tier I scheme is deductible from the total income under Section 80CCD of the Income Tax Act.
One should avoid investing in NPS for tax saving as lock-in period for Tier-I tax saving account is till retirement.
New rule under insurance-
An insurance plan is eligible for tax deduction only if it covers the policy holder for 10 times its annul premium.So Insurance policy should be purchased for life cover and should not be seen as an investment.Insurance has been giving returns of 5-6% on average.It will fall further as service tax on insurance product has been enhanced and a larger life cover would requires a bigger sum which goes into mortality charges.
What is mortality charge-
The cost of the insurance protection element of a life insurance policy. This cost is based on the net amount at risk under the policy, the insured’s risk classification at the time of policy purchase, and the insured’s current age.
PPF and other schemes have been linked to market now.
The Traditional savings scheme-
The small and traditional savings schemes such as PPF,NSC and the Senior Citizens savings Scheme(SCSS) will be providing lower returns in future as these schemes are dependant on Govt bonds,these bonds valuations are already coming down and their yields will slip further with a rate cut by RBI.
The interest rate of PPF,NSC and SCSS are decided on the basis of average yield during that particular year and is announced every year by Govt.Now the annual average has already dropped to 8.25% so in this PPF returns could be as lower as 8.5%.
Though the PPF rates will be announced every year NSC and SCSS will have a uniform rate till maturity.So if you are planning to invest in NSC and SCSS,do it now to lock in at interest rate of 9.3% which is going to come down soon.
Now here are the best expenses for savings TAX
1.Home loan repayment