Can tax saving and your long-term goals go hand in hand? Yes, they can. There are various tax saving investment options that come with a lock-in period. Most of these investments would lock in your money for at least 5 years (with a few exceptions). Thus, why not plan the investments in such a way that they also fulfill your long-term financial goals and save your tax at the same time? Here are the best tax saving investments to use for your long-term goals.
EEE and EEPE Investments
ELSS for the lowest lock-in period
It is an equity-linked mutual fund investment in India that comes with a lock-in period of three years. As the money is invested in the market, it is apt to meet long-term goals, like child’s education, marriage, etc.
PPF, a stable tax saving investment
Public Provident Fund or PPF is a popular tax saving investment tool. It helps you claim tax deductions on the deposits made. Even the interests that you earn are non-taxable. The lock-in period of PPF is at least fifteen years, and due to this, it also serves as the best retirement wealth management tool. Indians who moved to a foreign country to become an NRI can invest up to Rs 70,000 per financial year, the minimum amount being Rs 500 per financial year. There is, however, a condition of repatriation on NRIs. As per this condition set by the governing authority, NRIs can’t withdraw the maturity amount staying outside their native country. They can do it from an NRO account only. The limit is up to one million USD per financial year. While Indians can fetch a good benefit of saving tax and planning retirement with PPF account, an NRI may have no such exemption in the country they are living in.
ULIPs, the best option after demonetization
Since India has seen the face of demonetization, banks have lowered down the interest rate of several investment options such as FD and Savings account. Relying on banks for wealth management may not be the right step. Insurance is getting more preference these days. When insurance comes with tax savings, higher returns, and added protection, it is irresistible. This is where ULIP or unit-linked investment plans come into the picture. Of all the investment options available for working professionals and entrepreneurs, ULIP is undoubtedly the most successful investment plan owing to its value appreciation, tax savings, and flexibility to switch between funds.
Traditional Life Insurance Policies
It is an age-old belief that the traditional insurance policies make for a convenient and low-risk investment plan. You not only save tax but also make your future and that of the loved ones secure through long-term planning. According to the Income Tax Act of 1961, you get tax benefits under Section 80C and Section 10 (10D). Let us dive into this deeper.
- To get exemption under Section 80C, Term Insurance and ULIP plans are the best
- If you go for money back plan, you get tax exemption under Section 10(10D)
- You get an exemption on deposits made up to Rs 1,50,000
- Commutation benefit allows you to have a tax-free return on one-third of the pension payment that you receive
- You also get an exemption on tax under Section 80D for term insurance combined with health options or singular health benefit plans
With ULIP, you take a leap in the unexplored mutual funds investment in India if you are investing for the first time and with other plans, you plan for a financially secure retirement. The unique selling point of these policies is tax exemption of premium, returns and the maturity amount. Isn’t this what you have been looking for?
Exempt Partially Exempt or EEPE is an important tax saving investment. This investment exempts a pensioner for tax deductions under section 80CCC and section 80CCD if they have opted for pension plans such as EPF, PPF and NPS. Contributing up to Rs 1,50,000 and its interest are nontaxable unless withdrawn. As soon as you withdraw, they are taxable. The exemption is not full, however, partial. When you amount matures, you need to pay tax on the 40 percent of the money while the remaining 60 percent is free from tax. It is also mandatory that you use 40 percent of the corpus to buy an annuity and the income of which will be taxable. The opportunity of saving tax is available for both salaried and non-salaried individuals. Other pension plans EPF and PPF are non-taxable.
Invest today, or it can be too late. Investing today makes your tomorrow financially secure for you and your loved ones. If you are saving, it is good but not good enough that you exempt from taxes and make path for wealth creation. If you have high dreams and you want a life that is free from financial burden and worries, start investing now in any of the above-mentioned investment tools.