Investment in finance is all about money. How to manage, safeguard, and employ it back to create more of it.Investing in financial products, stocks, bonds and real estate is a proven method and it has paid huge dividends and aided investors to create wealth and grow over greater durations. Investment helps you cope up with the growing cost of living called inflation and deal with the imminent. It also helps you to create wealth over time and makes you more independent of your working salary to support yourself and achieve financial goals.
Apart from its uncountable preeminent advantages, investing has one very significant advantage that often goes unnoticed, it helps you save taxes. Yes you’ve read it right, investment when backed by proper research, and planning can save you substantial money that you pay in taxes.
1. INVESTMENT IN ELSS MUTUAL FUNDS
Equity Linked Saving Scheme (ELSS) are diversified mutual funds where majority of corpus is invested in equity. The investors enjoy two benefits. One, they get the market edge for the investment. Two, they save taxes under section 80C of the IT act. ELSS have a lock in period of 3 years. It comes in two options, growth and dividend. In the former, you get a lump sum after the completion of the lock in period while in the latter, you get timely dividends even in the lock in period. The returns under ELSS are completely tax free. Though there is no limit for max investment, tax exemption is limited to 1.5 lakh under section 80C. Some promising ELSS include Franklin India Tax Shield Fund, Reliance Tax Saver Fund, Axis Long Term Equity Fund.
2. ENTRUSTING YOUR MONEY IN ULIPs
Unit Linked Insurance Plans (ULIPs) are insurance products that provide risk cover to the policy holder along with options to invest into equity, hybrid funds and debts. They have a lock in period of 5 years and a policy term of 5-30 years i.e. for how long you are investing and your insurance is valid. Investment amount, return and maturity amount are tax free. Just like ELSS there is no max limit for investment but the tax exemption is limited to 1.5 lakhs under section 80C. ULIPs have given good returns of 6-12% in last five years and have proven to be good investments.
3. MANAGING YOUR INSURANCES
Investing in diverse insurance policies allows for income tax benefits. Two well known methods of investing are life and health insurances.
– life insurance safeguards your family. Your family is secured by large sums paid by the insurers. LI premium is eligible for tax exemption up to a maximum amount of 1.5 lakhs annually under section 80C, provided the sum assured of all life insurance is at least 10 times the annual premium. Death benefits of life insurance plans are tax dischargeable under the section 10(10) D, provided the precondition’s same as in section 80C during the entire term of the insurance.
– health insurance expenses by you and your family are eligible for exemption under section 80D for a maximum amount of ₹25,000 which include preventive health checkups. An extra benefit of ₹25000 is provided for health insurance of your parents. Apart from this an additional ₹40,000 exemption is provided for treatment cost of some specific illness under section 80DDB.
Above were the chief ways to save money on taxes.Coupled with these methods, other tax exemption ways under section 80C include home loans for buying, constructing renovating the house, tax saving fixed deposits, Provident funds.HouseRent Allowance (HRA) are covered under section 10(13A). Now that you know about ways to save on taxes you must not panic as March i.e. the end of financial year approaches. Armed with all the information about tax exemption, you must plan your Investments wisely!