Best Tax Saving Plan

Best Tax Saving Plan

Are ULIPs suitable for your investment requirements?

ULIPs in the current avatar are a far better bet compared to traditional plans for a variety of reasons. Let me list a few of them below and suggest why they may be suitable to a lot of people. I will also attempt to compare some of the features with traditional plans and hence the relative suitability for individuals.

·         Risk Appetite: If the person has ZERO risk appetite and is looking for low risk investments, then traditional plans are a better bet. Not that you will know the returns in advance but traditional plans do offer a certain amount of returns historically. Now if you are open to even low or moderate levels of risks, ULIPs are better as you can park your funds in debt funds and secure stable returns. If you see markets performing well you can move your money to more aggressive funds to reap the benefits.

·         ULIPs, like most life insurance products are long term products: ULIPs have a 5 year lock-in period while traditional life insurance plans have a lock-in period of 3 years. There is a positive catch in favour of ULIPs though in this. In case you decide to exit the policy after 5 years what your get in a ULIP will be far greater than what you get in a traditional plan. In traditional plans, you get back only a small portion of the premiums you have paid. In ULIPs you may even stand to make an investment gain if the markets have performed well.

·         Flexibility: Here is where ULIPs score far better than traditional plans. A little related to the point which I mentioned above in “flexibility”, with ULIPs you can decide where your money should be invested or go by the investment strategy of the company provided default option. In uncertain times you can stick to debt funds with low risk and move to growth oriented funds when you see the markets perform better. With a 10 year horizon, you will get enough opportunities to make these small adjustments and make money.

·         Surrender Charges: I wish to highlight this separately as we often find ourselves stuck with a plan and not having the resources to continue with it. The surrender charges will kill you in traditional plans, almost to the extent of banging your head against the wall! You will curse yourself if you buy a traditional Saving plans in a hurry to save tax or because you just felt obliged to the person selling you the plan. Later on when you cannot afford to pay the regular premiums, you stand to lose even the money which you have already invested. In traditional plans you will get only a small portion of the money you have invested in case you exit. With ULIPs, you may find surrender charges to be even zero after a few years. So you may be able to exit even with a profit!

·         Transparency: This is again where ULIPs score very heavily. You know exactly what charges have been levied and how you current account stands. With traditional plans, you know nothing – no information is shared with you. It’s a bit like receiving a bill from 2 hotels – one just mentions the high amount you are charged and the other offers a lower bill but has a complete split of all the charges. Since you now see the complete split of the bill, you tend to fret over the different charges not realising that they are much lower than what the other hotel has charged. But since the high bill amount had no splits you just shrug it off and pay the amount.

Overall, if a person has an investment horizon of 10 years, ULIPs are much better than traditional plans.

Save Tax & defeat the Tax Monster even at the 11th hour!!

Every year, the month of March springs a wakeup call on many of us. Suddenly, we are rushing at breakneck speed, going through financial papers, researching investment instruments, frantically calling the accountant—the deadline to file income tax returns is once again too close for comfort.

There are many reasons why we put off filing our tax returns each year—work, family pressure, and even sheer laziness. We are all wired to procrastinate; blame it on human nature. The point is this: Should we at all be procrastinating about something as crucial as our tax planning ?

Last-minute tax savings: Why it is a problem

Higher financial burden – Last-minute tax savers often have to scrimp during the last few months of the financial year because a bulk of their income is now directed into tax-saving instruments. The problem is compounded by the fact that the largest chunk of income tax is deducted during the final quarter of the financial year—i.e. from January to March.

Greater opportunity for error – Rushing is never a good idea, especially when your financial well-being is at stake. In the hurry to make good on the potential to save tax , you could make poor financial decisions and invest in unsuitable products. For example, a 25-year-old confirmed bachelor with no dependents has little need for life insurance, but he might buy a policy at the last minute in an attempt to save tax.

Dangers of mis-selling – When attempting tax savings at the 11th hour, many people consult agents and blindly take their advice. You should never take an agent’s sales pitch at face value because (a) there is the obvious danger of mis-selling by an unscrupulous agent and (b) even an honest agent may not be sufficiently aware of your financial condition. It is necessary to do your own research, which is not possible at the last minute.

Processing takes time – Note that buying a tax saving investment is not like buying groceries; there are procedures and it takes time. Furthermore, there may be unexpected delays for various reasons. Postpone your  tax planning until too late and you run the danger of missing your tax filing deadline.

Tax Monster

Tax planning: Why you should start early

Make good investments – You should ideally give yourself time to research tax-saving products so that you are certain of getting a good deal. Starting early also ensures that you benefit from the potentially higher rate of returns than your savings bank account would offer you.

Spread out the burden – If you start planning early, you can spread out the cost of making smart investments. Smart planning ensures that you do not have to adopt austerity measures as January comes around in a bid to do save as much tax as possible.

Look at the bigger picture – The longer you procrastinate, the greater the possibility that you will be looking at tax savings through blinkers: Your main goal will then be to Best Saving Plans in that particular year rather than on which tax-saving investment instruments benefit you over the long term. This really is the most important factor in favour of starting early, as it enables you to plan for your financial future in a better and more holistic way.

Top 5 Tax Saving Investment Plans

When Frank Sinatra sang ‘Fly me to the moon…’ he probably wasn’t thinking that we humans would actually make living on the moon possible. Although that plan is for a couple of years away, you could always start saving up to make it to the moon. Tax saving investment plans could just be the best way to help you get that moolah. Surprised?

Read on to find the top five tax saving investment plans that could get you to the moon, figuratively and literally.

Home Loan Principle:

You may wonder how a home loan can be an investment vehicle. A loan is a liability, but a home loan, being a financial assistance for an appreciating asset (like a real estate investment), the principal portion of a home loan repayment works as an investment.

The principal amount paid on any home loan can be used for availing tax benefits with a maximum deduction of Rs 1, 50,000 under Section 80C of the Income Tax Act. But before you get all set to avail the deduction, it is essential to know that this deduction is not available for any principal amount paid for a property under construction. The deduction is also available only for residential properties and not for commercial properties. The total deduction here is inclusive of all other financial instruments offering tax deductions under Section 80C.

Tax Saving Mutual Funds or ELSS: ELSS or Equity Linked Saving Scheme is one of the most popular tax saving instruments that offers handsome returns. ELSS is a diversified equity mutual fund that has a three year lock in period, which is the shortest amid all tax saving instruments. You can save up to Rs.1 lakh on tax under the ELSS scheme.

ELSS funds give returns ranging from 13% to 22% per annum, depending on the type of fund. The average returns of ELSS funds have been around 17.5%. You can join an ELSS fund with a minimum investment of Rs.500 a month as SIP. Any returns received from equity funds after one year are also tax free.

Tax Saving Fixed Deposits: Tax Saving Fixed Deposits allow you to save tax up to Rs.1 lakh under Section 80C of the Income Tax Act. However, the interest earned from these fixed deposits is taxable as per your income tax slab. Tax Saving Fixed Deposits come with a 5 year lock in period with an average return ranging from 8% to 9% per annum.

Banks do not offer any overdraft facility on these fixed deposit investments, unlike normal FDs. The interest for Best Saving Plans fixed deposits is generally compounded quarterly and gets reinvested into the fixed deposit along with the principal amount.

National Savings Certificates (NSC): National Savings Certificates are also tax free deposits allowing you to save up to Rs.1.5 lakhs under Section 80C of the Income Tax Act. Any deposits made under NSC, however, are not tax free as understood wrongly by many investors. But the interest earned can be re-invested to save tax under the same section.

NSC investments can be made at your nearest post office.  NSC investments come with options of a lock-in period for 5 years and 10 years. The rate of interest for investments made under NSC is fixed at 8.50% for five years and 8.8% for ten years. The minimum investment here can be as low as Rs.100.

Rajiv Gandhi Equity Saving Scheme (RGESS): Rajiv Gandhi Equity Saving Scheme (RGESS) offers tax savings up to 50% of the invested amount for the first year for a first time investor. So if you are a first time investor, you can claim a deduction of 50 percent of the invested amount subject to a maximum deduction of Rs. 50,000. However, the deduction can be claimed by only those who have an annual income below 10 lakhs.

The attraction of RGESS is that the deduction offered under it is applicable for money over and above the Rs. 1.5 Lakhs limit available under Section 80C. This scheme has reported returns of about 9.6% during the last financial year.

Source: https://blog.bankbazaar.com/top-5-tax-saving-investment-plans/