Tax Saving Tag

Best Tax Saving Instruments to Maximise Your Corpus

byfintooMay 5, 2021

Any person earning Income has to pay tax. So why are we waiting for the last-minute rush, tax planning and investing to save taxes should not be left for the last minute. Better to start now, this way one can get ample time to carefully plan your tax which will enable us to achieve our target of Tax saving and also helps to accumulate wealth for our future.

There are various tax savings options available under section 80 C of the Income Tax Act, 1961. Now the next step is to figure out the option which offers the highest possible returns.

Here we are going to discuss few such investments which are good tax-saving instruments and simultaneously helps to create wealth in a long term:

• Equity Linked Saving Scheme (ELSS)

Equity is the best investment option that offers a kind of wealth creation opportunity. It holds the potential to beat inflation and generate long-term wealth. However direct investment in stocks does not offer a tax-saving advantage and it is subject to a highly volatile market that needs lots of expertise to create wealth out of it. That is where Mutual Funds come because one can leverage the power of investing in equity but leave the expertise required for equity investing to the domain experts for small fees.

Equity Linked Saving Scheme (ELSS) is one of the best options in the given scenario. ELSS funds are diversified Equity Mutual Funds. One of the important advantages is it has a mere 3 years Lock-in period which is the lowest among other tax-saving instruments at the same time it gives the highest returns.

ELSS funds primarily invest in Equities and Equity Linked Instruments, across the market in terms of sectors and market cap.

Liquidity is also one of the factors of evaluation, the 3 years lock-in with ELSS funds may be a better option for most investors because your money is far more liquid than in other investments.

 Due to 3 years, lock-in period Fund Managers can generate better returns because they can take long term strategic decisions as opposed to short term moves in response to investor behaviour when the market is volatile.

SIP in ELSS:

Another good option is to invest in ELSS via SIP. Here one can invest regularly as per our financial goals and it also benefits from averaging during times of volatility.

One can also gain from the power of compounding, which is one of the next best options in building wealth creation. As per the growth option in ELSS funds you stand to benefit from the power of compounding.

E.g. If we invest Rs.5000/- per month (SIP) for 15 years in ELSS then the total investment was only Rs. 9 lakhs and the returns after 15 years would have been Rs.44.5 lakhs.

• Public Provident Fund (PPF)

When people think of building a corpus for their retirement, the first thing that comes to their mind is by contributing to the Public Provident Fund. Public Provident Fund is one of the safe options of investment as it is backed by the government. It gives a fixed rate of Interest annually (7.1% per annum – at present). However, with the current changes proposed in Union Budget 2021, the interest earned will be taxable if the annual contribution is Rs.2.5 lakhs and above. 

It is available in all post offices and all public or private sector banks. 

The Frequency to deposit in the PPF account is also as per the tax payer’s requirement ie. One can deposit either a lump-sum amount or in instalments during the Financial Year.

E.g. With an investment of only Rs. 5000 per month at 7.1% per annum one can receive approx. Rs. 16.7 Lakhs after 15 years. 

It is suitable for investors who want to avoid risk, save for long term goals like child education, marriage, etc without worrying about any capital loss.

Must Read: Portfolio Management Services in India

• Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana (SSY) is a small deposit scheme for the girl child launched as a part of the “Beti Bachao Beti Padhao” campaign. One of the reasons why this scheme has become popular is due to its tax benefit. It is again backed by the Government so it is preferred by those taxpayers who want to save tax and get good returns without capital loss.

Though this option is available only to those who have a girl child, it is a good tax-saving instrument that fetches the highest rate of interest (7.6% per annum) and also creates corpus in the long run which enables the taxpayer to achieve their financial goals like girl child marriage or for her study purpose.

A Sukanya Samriddhi Account can be opened any time after the birth of a girl child till she turns 10, where you will have to deposit a minimum of Rs.250/- and a maximum of Rs. 1.5 lakhs can be deposited during the financial year. The account remains operational for 21 years from the time it is opened or until the girl in whose name it is opened gets married, after she turns 18 years.

It comes with exempt-exempt-exempt (EEE) status as its annual deposit qualifies for Sec 80 C benefit and maturity proceeds are also non- taxable. The Interest received is also exempt from Tax.

• National Pension Scheme

As the name suggests National Pension Scheme is dedicated solely to retirement planning. It is a pension cum investment scheme launched by the Government of India for the age from 18 to 65 years. NPS is also a good option for wealth creation as your money gets invested across asset classes like equity, Government/corporate bonds, etc.  

Here one can have the choice to select our asset allocation which follows an age-based asset allocation model depending on our risk appetite. 

It has the dual benefit of investing for retirement and also the best tax saving instrument as it qualifies for EEE status.

Hence the National Pension Scheme can be a good option for those who are not comfortable making investment decisions on their own then such a tailor-made solution can be the best choice and will also build a corpus for their retirement.   

• Fixed Deposit Scheme

Fixed Deposits are one of the safest investment options, especially when one compares them with stocks or other market-linked instruments. As the volatility is low the corpus that one set aside in Fixed Deposits serves as a great way to ensure that your capital is safe.

For the investor who is just starting with different investment options, then investing the same amount as your capital is an easy way to arbitrage your risks and receive an assured amount at maturity.

One can also start saving at an early age and multiply wealth with the power of compounding. 

• United Linked Insurance Plan

United Linked Insurance Plan is a combination of savings and protection. Along with providing Life Insurance it also helps to channelize one’s savings into various market-linked assets for meeting long term goals.

A Minimum lock-in of 5 years is long term, which ensures investors generating good market-linked returns. 

It is good to stay invested in these schemes for a long-term period of say about 10 years or more. Over the long term, ULIP is expected to generate returns ranging from 10% to 12%. The returns from the best ULIP are better than other market instruments like FD’s, NSC’s, PPF, etc. Best ULIP can also beat inflation in the long term. 

One can also get a brisk return by exercising the option of fund switching in ULIP’s due to long term investment.  

The amount received on maturity is exempt from taxation u/s 10 D of Income Tax Act, 1961. Along with this tax relief, one can also avail of tax benefits on premiums paid up to a maximum of Rs.1.5 lakhs u/s 80 C of Income Tax Act, 1961.

Thus, the objective of wealth creation over an investment horizon of 10 years can be fulfilled by investing in the best ULIP.

Conclusion 

It is wise to think of investing beyond the traditional ways of saving tax like, investing in Fixed income tax saving instruments like FD, PPF, or endowment life insurance plans etc. Plan for other options like ELSS, ULIP, etc based on the risk appetite and other relevant factors as discussed above of an individual. 

With many options available when investing for wealth creation and saving tax at the same time can be easily achieved by making the right choice at the right time and getting started with it at the earliest.

To Invest and keep regular track of your portfolio download: Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS http://apple.co/2Nt75LP

Invest to save tax now! Best handpicked ELSS schemes

byfintooMarch 24, 2021

What are ELSS Funds?

Equity Linked Saving Schemes (ELSS), popularly known as tax saving mutual funds, are equity-oriented mutual funds. As per the SEBI regulations, ELSS funds have to invest at least 80% of their corpus in equity or equity-related instruments.

These funds come with a lock-in period of 3 years and qualify for tax deduction under Section 80C. Investments in ELSS of up to Rs 1.5 lakh per financial year can be claimed as tax deduction under this Section.

Why invest in ELSS funds for saving tax?

ELSS schemes have superior product features than other tax saving investment options under Section 80C like PPF, ULIP, NSC and tax-saving bank FDs.

Higher returns: Even though equities as an asset class can be very volatile in the short term, they usually beat other asset classes including the fixed income asset class by a wide margin over the long term. Hence, being invested in equities, ELSS funds have the potential to generate higher returns other Section 80C instruments like Public Provident Fund (PPF), National Savings Certificate (NSC) and tax-saving bank fixed deposits over the long term.

Shortest lock-in period: The lock-in period of ELSS funds is just 3 years, the lowest among all tax saving investment options eligible for Section 80C deduction. Among other Section 80C options, NSC and  tax-saving fixed deposits has a lock-in period of 5 years. The lock-in period of PPF is also 15 years whereas the lock-in period in the case of ULIPs is 5 years. Thus, ELSS funds offer the highest form of liquidity among all tax saving investment options.

As ELSS funds offer the greatest potential of creating wealth over the long term, these can be an excellent tool for achieving long term financial goals like children’s education fund and post-retirement corpus with contributions lower than its fixed-income alternatives.

The 3-year lock-in period in ELSS funds also reduces the redemption pressure for their fund managers during volatile markets. This allows their fund managers greater flexibility to take a more long-term view while dealing with market volatility with respect to other open-ended funds.

Best ELSS funds for tax saving in 2020-2021

1. Mirae Asset Tax Saver Fund

• Aims at building a diversified portfolio of strong growth companies at a reasonable price across market capitalization, themes and investment styles
• Uses a bottom-up approach for stock selection driven by value investing in growth-oriented businesses
• Investment decisions are based on broad analyses of the macroeconomy, business cycles and industry trends
• Prefers companies with high return ratios, robust business models and sustainable competitive advantages over their competitors
• Aims to invest in a large base of stocks to avoid concentration risk
• Monitors the trading volumes of identified stocks before investment to avoid liquidity risk

2. Aditya Birla Sun Life Tax Relief 96

• Uses a combination of bottom-up and top-down approach for stock selection
• The top-down approach helps in analyzing changing economic trends, key policy changes, macroeconomic factors, infrastructure spending, etc
• The bottom-up approach is used to identify companies with a strong competitive position in good businesses and stable management focused on long term fundamental growth

3. Kotak Tax Saver

• Uses a bottom-up approach for stock selection across market capitalization
• Invests in stocks priced at a material discount to their intrinsic value
• Prefers companies with strong financials, reputed management and relatively less susceptible to recession or business cycles
• Also prefers companies with strategies to build strong brands and franchises

Related article: How ELSS is better than any other Tax saving scheme?

4. Axis Long Term Equity Fund

• Invests in quality businesses with a long-term approach
• Uses a bottom-up approach for stock picking
• Can invest across market capitalization, usually in a mix of large caps (around 50-100%) and select midcaps (up to 50%)
• Quality and long-term earnings growth prospects are also used for stock selection
• Uses a research process based on fundamentals to analyze the growth potential of stocks having strong business models and sustainable competitive advantages over their competitors

5. Motilal Oswal Long Term Equity

• Follows an investment style and philosophy based on the ‘Buy Right: Sit Tight’ principle
• ‘Buy Right’ refers to buying quality stocks at a reasonable price
• ‘Sit Tight’ refers to remain invested for a longer time to realize the maximum growth potential
• Follows bottom-up approach for stock selection
• Uses a benchmark agnostic approach to build a portfolio consisting of high conviction stock ideas and low portfolio churns
• Believes inadequate diversification with a smaller number of stocks

Important points to select the best ELSS funds:

• Compare the past performance of 3-, 5- and 7-year periods while making fund-selection. While no one guarantees past performance in future, comparing their past returns can help in depicting how they coped with various market conditions.
• Don’t wait for the last quarter or month of the financial year for investing in ELSS. High valuations in the equity market at that time, if any, would cost you more for the ELSS fund units. Instead, opt for the SIP option to spread your investments across the year and benefit from cost averaging during a market correction, if any, in the interim.
• Don’t opt for the dividend option. Instead, opt for the growth option to benefit from the power of compounding. Dividends are also taxable at the hands of investors as per their tax slab.

To Invest and keep regular track of your portfolio download Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS – http://apple.co/2Nt75LP

Things to Know Before You Submit Investment Proofs for Tax Saving

byfintooAugust 11, 2020

The closing of 2nd quarter of the financial year is in the vicinity and tax season for employees is about to start. Knowing the tax rules, exemptions, and a variety of ways to save tax is important to plan tax saving. In India, employers deduct tax from the salary of employees on monthly basis and deposit the same with govt every month. This requires calculating the taxable salary of each employee.

This year, with the introduction of a new tax regime, it is more important to do your calculation in advance to understand which regime will be beneficial for you – New or Old!

Read here: Old vs New tax regime – Check what Mr. Shah opted for? – Fintoo Blog

Now, as you know certain investments and reimbursements is deducted from the taxable income, making declaration about the investments is important to save good amount of income tax.

The process goes like this. At the beginning of the financial year, employers tell you to declare your investments, calculate your taxable income and pay salary to the employees accordingly. The tax which is deducted on monthly basis based on this calculation is called Tax Deducted at Source or TDS. This requires employees to make the declaration of the investments at the beginning of the year. In the month of December and January employers ask for actual proofs of investment in relation to the declaration made by the employees earlier. In case, the investment declaration is not made the employees cannot avail exemptions from tax on account of investments. But in case an employee forgot to make an investment declaration in time he can claim the excess tax deducted from his salary later.

Let us explain here below the most important aspects in relation to declaring and submitting investment proofs for tax saving.

Know the regulations as well as pros and cons of making investment declaration

Declaring your investment helps the employer deducting the correct and appropriate tax amount from the salary of the employees. Ascertain investments are subject to tax exemption by declaring them the employee can reduce the tax load on their income. Knowing which investments can help you save tax and to what extent is important. Besides travel reimbursement and few other expenses like house rent are also subject to tax exemption. Employers begin collecting the documents as proofs of investment from the month of December and January to validate the declaration made by the employees earlier. This takes 2 to 3 months and the process becomes complete by March every year.

What are the implications that an employee can face in case he cannot furnish that declarations of his investments in time?

Let us have a look at the possible implications.

• First of all, he is liable to pay a much higher amount of income tax on his income.
• In case the declarations are not proper and does not match with the documents he may need to pay more tax on his income.
• Often this extra amount of tax may require an amount equal to two or three months of salary.

What are the investment proofs for saving tax?

• Proof of investments under ELSS or other 80C investments
• Life insurance and health insurance premium.
• Rent receipts to claim deduction under HRA.
• For the sake of claiming your LTA you need to provide all the travel receipts including boarding passes and flight tickets.
• For getting reimbursement against a home loan you need to provide home loan certificates as proof of the same.

You can also show saving bank interest, FD interest

Do you know your regular bank savings and investments are also covered under the income tax regulations concerning tax exemption? You can also disclose your interest earned from saving bank account, yearly FD/RD interest, and the capital gains from the shares and mutual fund during the year. This helps the employers getting a complete view of the taxable income and the income tax you are liable to pay.

Don’t worry if  you are late in submitting the proofs. You can claim it later!

If you just forgot to do the needful in regard to submitting your documents for the investment, we must assure you that you do not need to worry since you can claim your deductions later as well. Obviously being late and forgetting to submit your proofs of investments in time is never recommended and is not healthy for your personal finance, but in certain conditions, if you forget or just do not find time to take of these things, you do not need to worry. If employees who actually become able to invest in tax-saving financial instruments later can submit their proofs of investments at the time of filing the tax returns and can claim the deductions.  

It is not mandatory to submit proofs when filing tax returns

When filing the income tax returns all that you need is to furnish all the necessary information about the investments and at this point of time the employee does not need to provide any validating documents as proofs of the information provided. These proofs are only required by the employers as they deduct the TDS and serve as the third party validating the claims made by the employees. While documents are not mandatory any employee can further be needed to provide them in case of cross checking. So, it is advisable to provide always true and exact information about the investments made by the employees.

You need to furnish proofs of investments in the month of February and March against your earlier mentioned investments

It is understandable that for premiums and investment installments that are due in March cannot always be validated with receipt or any document months ago. In case you do not have the premium receipts with you or your SIP or ELSS statement does not reflect the installments paid, you have the option of making a declaration and employers will provide you a form for this purpose. When the year-end tax filing would be done you will be given the exemptions based on the declaration made by you.

Finally, you can always get your excess taxes returned to you by furnishing the documents for the investment made. While it is always better to declare and furnish things in time, you can always furnish investment information and supporting documents later to claim your rightful deductions.

To Invest and keep regular track of your portfolio download: Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS http://apple.co/2Nt75LP

Don’t invest just to save taxes

byfintooJuly 9, 2020

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.

Read here: How to make the most of the tax break for medical expenses in 2020 – Fintoo Blog

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.

To Invest and keep regular track of your portfolio download: Fintoo App Android http://bit.ly/2TPeIgX / Fintoo App iOS http://apple.co/2Nt75LP

How To Improve Your Savings According to Financial Planners

byfintooJune 4, 2020

Savings and investment can be boosted up easily either by increasing your income or cutting down on expenses. Whether you are on the brim of retirement or a fresher who has just started with his work tenure with a big MNC, savings remains to be the ultimate goal during all stages of our life. Contrary to popular belief, even 100 INR saved today can go a long way in adding to your corpus if invested properly. Today, we are going to take you through some expert recommended tips for hiking up your savings, boosting up income, reducing debt and investing wisely.

Repay Yourself

Savings refer to that part of our monthly income which is left after paying back all expenses. But this needs to be computed the other way around. You should first keep a portion of your income aside before deciding on the things to do with the rest. For example, if you are earning Rs.40,000 then first keep aside around Rs.10,000 for investments and then manage your expenses in balance 30,000. This way you will be more disciplined towards savings. For achieving this, you can opt for automatic transfers to an investment or savings account directly.

Creating A Buffer For Rainy Days

The first priority of all individuals should be to create a fund for rainy days. This serves as the basis of creating a sound financial plan. Once you have accumulated enough to mitigate about three to six months of expenses, you can shift your focus to future savings and debt reduction.

But for benefitting the most out of the same, you need to decide on the type of expenses which can be classified as emergencies. For starters, job loss or a major illness can be considered as a true emergency. Infrequent expenses such as purchasing a new car cannot be classified under the head of an emergency although you also need to save for the same.

Save More By Spending Less

You can trim down your expenses in a variety of ways be it by cutting down on the consumption of the daily premium coffee or multiple online channel subscriptions. But while cutting back on the spending, you need to ensure that it doesn’t get spent on any other unimportant avenue. If you are not sure about investing the money, then you can make a pending payment or simply transfer the fund to your savings account.

Bid Adieu To Expensive Habits

If your day just doesn’t start without a Frappuccino from Starbucks and maybe a costly dine-out at posh restaurants on weekends, then it’s time to cut down on the same. Apart from the obvious health benefits of starting your day with a home-made black coffee and ending it by munching on house cooked food, these small steps taken can inflict great differences in your ultimate savings figure at the end of the fiscal. Once you direct this money towards other sources having higher potential, such as paying off bank debt, you can free up your money faster. This in turn can be redirected towards further investment. You can make a list of all the debts which need to be paid back and start with the ones having the smallest balances or the highest interest rates.

Unleash Your Creative Potential To Increase Earnings

You can increase your regular income by either selling off redundant things or maybe getting a part-time job for utilising the time you otherwise spend lazing around during lockdown. Taking up full time work can seem burdensome especially when you are working round the clock for the weekdays. It is thus advisable to take up short term projects which can align you towards a specific savings goal. You can also generate extra cash for savings by selling off artifacts and belongings you no longer require such as collectables, designer clothing, jewellery, musical instruments etc.

Proper Asset Allocation

While some investments rank high in the department of volatility, others are comparatively tame on the risk-reward scale. Younger people are advised to proceed with aggressive investment options whereas older people approaching their retirement age should stick to the conservative avenues. A direct correlation exists between risk and return. Thus, if a particular investment house is promising you sky-high returns with equity linked funds, then you should also be adequately prepared to suffice the bloodshed if the market crashes.

Baby Steps Towards Savings

If savings seems like a difficult challenge for you, then you should start off with smaller targets of maybe 100 or 500 INR daily. Once you have saved adequately and spent it for realising a particular aim, you can continue with further savings so that you can slowly meet all your debts. If you feel that your savings are not sufficient for meeting long-term investment and major purchases, then your standard of living is definitely higher than what it ought to be. Such a scenario makes it necessary to make major adjustments such as shifting to more affordable housing or even trading your new car for cheaper public transportation.

Sticking To An Investment Plan

Steady investors who wish to diversify their portfolio should actually shift their attention towards purchasing more shares whenever the stock market takes a dip. You need to review your investment strategy on timely intervals and remain unperturbed by newspaper headlines during the allocation of funds. The ultimate aim here should be to continue with the investment pattern irrespective of what the newspapers are hinting at.

Seeking Out Help

Investors often feel confused about which stocks to select and how to optimally balance their portfolio. In such a case, they can readily seek out the assistance of trained professionals. Contrary to popular misconception, financial advice is not earmarked against the wealthy strata of our society. It can benefit everyone who wishes to increase their savings and safeguard themselves from the uncertainties of the future.

Read More :- Financial Planning – A Need not a Choice

Conclusion

It is impossible to create a promising future unless you learn the means of prudent investment and judicious savings. Money has a big role to play in regulating the flow of our lives. While it serves as an essential wealth creating tool on one hand, it also acts as a transaction instrument which can satisfy our present requirements. Proper financial planning empowers individuals in meeting their ultimate goal by creating a trade-off in between current and future consumption along with other variables such as savings and investment.