For many people in India investment is all about tax saving. For them, Investment planning starts with tax savings and ends with tax planning. As the second quarter of the financial year has started, many of us will start thinking to invest to save taxes. Also, because the tax-saving deadline has been extended to 31st July 2020 for FY19-20. In this process of investment many times we may get into the wrong investment product commitment. It impacts not only your cash flow but also your future financial goals.
The primary objective of any investment is not tax saving. It’s one of the benefits which we derive by investing in specified investment instrument eligible for tax savings. Ideally, investment should be done as per your financial plan. Which helps you to achieve your personal financial goals as well as helps you to create wealth. Here we will discuss a few of the most popular investment choices along with the required objects for the same. If your investment objective matches with the product benefit then one should invest in the instrument.
National Pension Scheme (NPS)
NPS helps you to plan for retirement. It’s a kind of deferred annuity plan which helps you to create retirement corpus by saving regular amount during your working years and after retirement, it converts to immediate annuity plan. Immediate annuity plans start giving you regular monthly pension after age 60 in NPS. Contribution to NPS during your working years is eligible for tax saving u/s. 80C up to Rs.1.5 Lac. Also, there is an additional amount of Rs.50000 eligible for tax saving over-and-above 80C benefit. Ideally, if you are planning for your retirement then it makes sense to invest in NPS.
Public Provident Fund (PPF)
One of the most popular choices in India for Tax savings is PPF. It’s one of the most tax-efficient investment instruments as well. PPF is few of the product which falls in E-E-E category. It means at the time of investment you can claim benefit u/s. 80C. The interest earned is exempt from tax. And maturity proceeds are also completely tax exempt. PPF is one of the safest investment instruments in India. Duration for PPF is 15 years and can be extended in a block of 5 years on maturity multiple times. If anyone wishes to create a corpus for specific goals for 15 years or above or for retirement then it’s an ideal scheme with guaranteed returns. Please not that PPF returns keep on changing from time to time.
Equity Linked Saving Scheme (ELSS)
Mutual Funds in India offer various investment schemes. One of the schemes which is eligible for tax saving u/s. 80C is ELSS scheme. There is a lock in period of 3 years during which we are not allowed to withdraw fund value. At the time of investment, you can claim benefit u/s. 80C up to 1,50,000. If an investor wants to save taxes and wishes to invest in equity then this is the ideal and best option. For the long term, ELSS can be one of the best choices for wealth creation.
Life Insurance Policies
There are various types of life insurance policies with varied benefits. One should understand its benefits and match with your required objective. Life Insurance Policies is also one of the products which fall in E-E-E category. It means at the time of paying a premium you can claim benefit u/s. 80C. The money-back or bonus received is exempt from taxes. And maturity from the insurance policy is also completely tax exempt. Life insurance is the best choice for your tax planning if you need protection along with wealth creation and tax saving.
National Savings Scheme (NSC)
One of the traditional and most popular tax saving choice is to invest in NSC. NSC is available for 5 years. Investment in NSC is eligible for deduction u/s. 80C. Interest earned on NSC is reinvested till maturity. Interest reinvested is also eligible for tax saving u/s. 80C except for the last year of maturity. One of the important point to remember is interest earned on NSC is taxable. It gets clubbed with total income every year till maturity. For medium term financial goals i.e. for 5 year period NSC offers high tax efficient yield.
At the end, Investment helps you to create wealth. Government encourages investment in various instrument by making it eligible for tax saving. Invest to achieve your financial goals and to create wealth not just to save taxes.