Hi friends, and welcome to this podcast by Angel broking!
Doston naye budget release hone ke chalte taxes par bahut charcha ho rahi hai. Kuch logon ne toh tax slabs mein almost zero changes dekhkar is saal ka budget announcement kaafi anti-climactic paaya. What about you?
Achcha taxes mein change hua ho ya nahi, tax saving ka perpetual question never gets old. On my visit to my cousin's place last year, Saransh ki friend Neha ne tax savings par baat shuru kar di. According to her, she was saving and investing her money, lekin kuch handsome gains ke baad bhi uske investments ke returns taxes pay karne mein use ho jaate hain. She was very uncomfortable when she found out that a year worth of regular investing led her nowhere. Ye dekhkar she felt very discouraged in saving. Being a relative newcomer to India’s salaried population, Neha was not alone in her unawareness about tax saving mechanisms in India.
I gave her a quick primer on some tax saving investments, and she was able to save over 50 thousand rupees on taxes! This year, Neha gave me a call to thank me for that primer.
That’s why, I’m going to give one to you too!
Get ready, and gear up to save on your taxes this year, with these 5 tax free investments:
Number one - PPFs
PPFs ya fir public provident funds basically long term tax saving investments hote hain. Inpar invested amount tax free hoti hai. Lekin only 1.5 lakhs worth of annual investments are tax free. Can you think of financial goals towards which you would invest in a PPF? Buying a house is one to begin with. Ye isliye, kyunki real estate is expensive, and it is likely to take you 5-15 years worth of savings to afford down payment on a property of your taste. This is perfect, kyunki PPFs ka lock in period 6 se 15 saal tak hota hai - 6 saal ke baad you can withdraw partial amounts for your funds, and 15 saal ke baad you can withdraw all your funds. Late starters ke liye PPFs retirement savings ka ek portion bhi save karne mein helpful ho sakte hain. PPFs se milne waale maturity proceeds aur interest bhi tax exempt hote hain. Win-win scenario on both sides!
Number 2 - ELSS
ELSS ya fir equity linked saving schemes help you save for the short term. Inme aap up to 1.5 lakhs tax free invest kar sakte ho, and inka lock in period 3 saal tak hota hai. Isliye, ELSS forms an excellent option for those who are looking to save for short term goals like buying a car, or a two wheeler, saving for home renovation, or simply upgrading your lifestyle. ELSS gives you exposure to equity markets - isliye, they can potentially offer better rates of returns. ELSS par 1 lakh tak ke capital gains tax free hote hain - after that, your gains will be subject to 10% tax. While this might look like a not so good offer on a second look, think again - agar aapki income 12.5 lakhs se zyada hai, toh equity based investment instruments like mutual funds ke gains pe aap apne tax slab ke rates ke according tax pay karoge - which will be 25-30%. That’s why, ELSS is an excellent short term saving option for high earners too - lastly, they allow you to save on a monthly basis, in a systematic manner, which is very convenient to manage in your monthly budget.
Number 3 - NPS
NPS, ya fir New Pension scheme basically ek retirement planning instrument hai - lekin isme participate karne ke liye you have to be between 18 and 60 years. NPS ke proceeds become available to you only after you are 60, and isme aap upto 1.5 lakhs tax free invest kar sakte ho. Your funds will be managed across equity, government bonds and other instruments - aap apne portfolio ko actively manage kar sakte ho, ya fir auto-pilot pe chhod sakte ho. While retirement planning might seem like a far fetched idea in your young age, starting early on retirement planning can help you save lots of troubles later on! So choose wisely before dismissing retirement planning as a boring affair. Alright, enough said! Chalte hain, to the fourth one.
Number four - ULIPs
ULIPs ya fir Unit linked insurance plans basically investment aur insurance ka ek packaged bundle hote hain - which means, they keep you insured for a period of time, and parallely, aapke investments ko bhi manage aur grow karte hain. But because of this dual nature, ulips par returns usually baaki saving plans se lower hote hain. Inpar aap section 80c ke according upto 1.5 lakhs ke tax deductions claim kar sakte ho. Kuch log ULIPs ki jagah insurance aur investments separate rakhna prefer karte hain, because investment instruments are geared to create wealth and targeted insurance products give better coverage than ULIPs. And just to reiterate - kuch types ke insurance par bhi tax deductions available hain, so pick your approach wisely here.
And lastly, we have come to number 5
And here, we are talking about fixed deposits. You are probably familiar with this. Deposits basically refer to your good old fixed deposits and post office schemes. To make your fixed deposits tax free, aapko 5 years ke lock in period ya usse zyada ke liye opt karna padega. Tax free post office schemes also come with a lock in of 5 years or more. In deposits par returns are usually very low, and the proceeds might not be tax free in some cases. For example, fixed deposits par proceeds withdraw karte hue, you will have to pay tax as per your slab rates. While the return in deposits are certain, they are made for investors with a very low risk appetite. Lekin recently, low risk, debt-linked mutual funds and other schemes have reduced the popularity of these instruments. Toh friends, these are some instruments that you can use to save big on your taxes every year. After all, savings ka ek major incentive hota hai compounding growth. Agar taxes aapke investments ki growth ko hamper kar rahe hain, toh you should strongly consider throwing these instruments into your portfolio. Now you ask which instruments should you pick. And I say, guess what?
There's no right answer. Usually, a smart approach is to put your eggs in different baskets - no offense if you're a vegetarian - potatoes work just fine!
Essentially, the point is ki ye sabhi instruments specific goals serve karte hain - all of which can be targeted simultaneously. After all, if you are a smart financial planner in your 30’s, you have already started investing for retirement, and other milestones like buying a house, funding your kids’ education down the line, saving for that long trip across continents or simply buying a car. Ye sabhi instruments apple different financial goals mein fit hote hain. For example, agar aap apne monthly earnings me se 20% savings me contribute karte ho, toh is savings ka 10% portion NPS ke taraf pay kiya jaa sakta hai, 20% PPF account mein invest kiya jaa sakta hai, and you can choose to pick an aggressive or conservative contribution to your stocks and mutual funds portfolio. Let’s say that you realize ki 4 saal baad you will need some money to renovate your house. Is case mein, aap apne monthly savings ka ek sizeable portion parallely ELSS mein invest kar sakte ho. All the mentioned tax free investments will ultimately save you taxes both while investing, and while withdrawing your money. In the long run, the benefits will send your finances running fast-forward by years! So think wisely before setting aside that money in your savings account or simply investing it all in one instrument.
Toh friends, this was my quick primer on tax free investments in india. I hope that is knowledge se aap bhi Neha ki tarah taxes save karoge over the coming year. If you are interested in more ways by which you can manage your money better, then check out our other podcasts or simply visit www.angelbroking.com - where learning never stops! Milte hain in the next podcast…
Until then. Goodbye from angel Broking, and happy investing!