Here are 5 tax-saving strategies for salaried employees

Podcast Duration: 08:45

Hello friends and welcome to today’s podcast by Angel Broking

Dost, it is that time of the year again. The time when you need to dig out some savings...or else, put an abrupt end to a year’s worth of splurging, so that you can save on some tax. Ji haan, tax-saving investments ka samey aa gaya hai. Deadline kaafi paas hai aur ab delay karne ka koi savaal hi nahi hai.

Toh investment kis tarah karna chahiye, kidhar invest karna chahiye or kitna invest karna chahiye - these are the questions that are keeping you awake at night - hai ke nahi?

Not to worry, dost, we have you covered. Aaj dekhte hai some simple strategies to put into practice while selecting your investments for the year.

Lekin before that, let us talk about how tax can be saved - Basically, the government allows for a certain amount of your income to be exempt from tax even if you fall in the tax bracket. Agar aapka income Rs two lakh fifty thousand se kam hai, toh aapko tax barna hi nahi hota hai, lekin agar aap Rs 2.5 lakh se zyaada kama rahe ho, toh aapko tax barna hota hai. Lekin aapko Rs 1.5 lakh ka tax exemption mil jata hai agar aap yeh paise ko kisi bhi ‘80c investment’ mein invest kar lete ho.

Kya hai yeh ‘80c investment’. These are investments that are considered tax-saving as per section 80c of the income tax act. There are many types of investments listed here such as ELSS Mutual Funds, 5-year fixed deposits, life insurance, PPF … kaafi saare options hai.

Aap apne office accountant ko yeh investment receipts ke scans ya photocopies de sakte ho ya aap apna income tax file karte samey yeh investments ko declare kar sakte ho, and you can enjoy a Rs 1.5 lakh tax benefit.

Yeh investments financial year ke andar hi puri honi chahiye - it has to be completed before 31st March.

Toh chaliye as promised, let us look at five tax-saving strategies for all the hard-working salaried folk out there, trying to protect their income from tax burden.

Choose the shortest possible investment term The idea is that you should try and get your capital back at the earliest possible turnaround time. Phir woh capital ke saath kya karoge, woh aap ki marzi. Spend it all on a mountain of shopping bags, invest it in options that offer better possible returns or tick things off your bucket list. Lekin lock-in sabse short chun lo. Agar aap PPF mein invest kar doge, toh your money is locked in for 15 long years. Agar aap fixed deposit choose kar doge, toh aapka paisa 5 saal ke liye locked in rahega. Penalty de ke withdraw kar sakte ho, but why… especially when there are other options.

A good option is to go with ELSS Mutual Funds because they offer a relatively short lock-in period of three years.

For argument’s sake let’s say you’re okay tying up your money for 15 years. However, the point is also how often you get tax-saving on that capital

For example, if you put 1.5 lakh in PPF, you will get tax saving once in 15 years on that amount If you put that 1.5 lakh in a fixed deposit, you get tax saving once in 5 years on that same amount - yeh marginally behtar toh hai hi.

Lekin agar aap woh 1.5 lakh ko ELSS Mutual Fund mein dal dete ho, aapko tax saving har 3 saal milega. If you compare it to the PPF option, you get tax saving thrice as often on the same amount for the same investment term.

Go with an option that gives you a chance to earn a return that beats inflation Besides the term of your investment, aapko growth bhi consider karna hi hota hai. Your money has to grow at a rate that keeps pace with the rate of inflation. If not, your money is worth less than it was last year … which translates to… you are poorer than you were last year. In other words, you are not getting richer - but poorer actually - if your interest rate is not higher than the rate of inflation.

Example ke saath explain karta hu. A few years ago, one might have been able to buy vegetables for Rs 40 per kg in a city like Mumbai, for instance. Lekin abhi, for most part, one might find that the same vegetables cost Rs 60 to Rs 80 per kg. Now multiply this with the cost of travelling to work - whether you are considering fuel or your travel fare by public transport, you will agree ki cost badhti hi ja raha hai. It is on an upward trajectory. Your maid might ask for an increment, your child’s school fees are getting higher, you’re paying more for tickets to the same destinations and so on. This is inflation. Cost of living hamesha increase hota rehta hai. Aapka invested paisa ka bhi growth hona chahiye - if not, it's worth has decreased because it cannot buy you what it used to get before.

Mutual funds are typically seen as displaying a higher potential for return than traditional investments. But before you jump to invest, read the next point.

Consider your own risk appetite ELSS stands for equity linked saving scheme. Equity means stock market. Stock market means risk. That’s why mutual fund ads ke anth mein bolte hai ‘mutualfundsaresubjecttomarketriskpleasereadtheofferdocumentcarefullybeforeinvesting’. Of course, aapka paise koi experienced jana handle kar raha hai, lekin risk phir bhi rehta hi hai. When you invest in a mutual fund, your money is pooled with that of other investors and put into the hands of a fund manager. A fund manager is usually someone who is experienced in stock market investments and is supported by a team of similarly experienced personnel. They invest your money in the stock market, in a combination of debt and equity. Did that sound like greek. Main samjhata hu Debt is viewed as relatively safer with a lower potential for return while equity is viewed as relatively riskier with a higher potential for returns.

Debt refers to stock market investments such as bonds, where money is sort of loaned to another party to be returned by a given date. Equity refers to the purchase of shares of companies where the stock price determines how the investment is performing.

ELSS mutual funds are typically made for low-risk seeking investors. However, to be safe, talk to your financial advisor to ensure that you invest in mutual funds that have a similar risk profile as you.

Try to lower your cost of investment When you invest in an ELSS Mutual Fund, aap tax bachane ki koshish kar rahe ho. But you might bleed capital in terms of what you pay to the fund house by way of fees. Yeh fees ko ‘expense ratio’ bola jata hai. Check the expense ratio of a mutual fund before investing and make sure that it is a worthwhile investment.

Ek aur suggestion - sach bol du toh...yeh financial year ke liye thoda late hai ...lekin April se please yaad rakh ke yeh practice karna.

The price of units of a mutual fund fluctuates through the year. Ho sakta hai ki janvari mein 100 units ke liye Rs 100 dena hota hai, lekin February mein same Rs 100 mein sirf 80 units mil sakte aur October mein same Rs 100 mein 200 units mil sakte ho…. Agar kisi investor har maheena same amount invest karta hai, toh yeh cost average out ho sakta hai. Isse kehte hai rupee cost averaging aur isse istimal kar ke aap apna investment cost reduce kar sakte ho.

Diversify

You have definitely heard the saying ‘don’t put all your eggs in one basket’. Iska deeper meaning yeh hai ki agar ek basket gir pada, toh kam se kam aapke paas dusre eggs rahenge, jo dusre baskets mein the. The same goes for ELSS Mutual Funds. Since there is a degree of risk involved, it is best to invest in a few different places. That way, it is possible that in case one investment underperforms, the others can potentially offset the underperformance by delivering good returns.

My work here is done dost - I have, as promised, given you 5 strategies to consider while choosing tax saving investments. These strategies are designed to help you save tax and to potentially gain from good returns and low investment cost, and to keep your money as safe as is realistically possible in today’s world.