It’s the last week of March and maybe many of us are looking for time and money to complete our tax planning investments. Exactly the wrong way to go about it.
Tax saved is money earned. Thanks to the benevolence of our tax laws, we can invest money, earn a return and also save income tax payable on the investment. Enter it while it exists.
Under Section 80C of the Income Tax Act, you can invest up to Rs 1.50,000 in prescribed investments and reduce your tax payment. These Rs 1.50,000 are deducted from your taxable income so that you save up to Rs 45,000 on your tax liability, assuming you are in the 30% tax bracket.
While investing in a post office program would require a quick trip to the post office, the rest can be done online, provided you have sufficient funds.
As we can see, each plan has a different lock-in profile, return profile, and tax profile. Some are one-time investments while others are recurring commitments.
In terms of the shortest lock and the potential for higher returns, ELSS seems to be scoring well. If you’re willing to take the risk associated with the stock market, it’s a safe avenue for building wealth. The lockup period is irrelevant because you can stay invested in it for eternity. Moreover, you can invest any amount in this program. Withdrawals are taxed at a preferential rate of 10%. After the lock-up period, you can withdraw as much as you need whenever you need.
Some of the most popular ELSS schemes in the market today are Mirae Asset Tax Saver, Axis Long Term Equity Fund and SBI Long Term Equity Fund with a multi-year track record.
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It makes sense to make this tax planning saving a habit and tie it to some long-term financial goals like the future of the kids or your own retirement. Tax saving is only a pretext; you have to save and invest even otherwise.
The upshot is this: there are quick fixes, but don’t wait until the end of March to save. You will run out of time and money. Do it first thing in April itself or at least on a regular monthly basis. Opt for a SIP in ELSS schemes.
(The author is a personal finance expert and CEO of Shilpa Associates, Bengaluru).