Tax savings and financial goals do not have to be mutually exclusive. With a little bit of planning, you can hit two birds with one stone.
Most individuals are last-minute planners. From studying for examinations to planning taxes, we tend to put off important tasks until the very end. Often, this stems from the idea that difficult tasks cannot be handled outright with ease. We are here to break that myth for you. Tax-saving investments can help you plan for your financial future with just a little bit of smart planning.
What are tax-saving investments?
Tax-saving investments are financial instruments that help you get tax benefits. For instance, if you invest in a fixed deposit for five years, you can claim deductions of up to Rs 1,50,000 under Section 80C of the Income Tax Act. There are many other similar tax-saving instruments such as these.
If you are aware of all the instruments available in the market, you can make smart investment decisions that can help you meet your financial goals.
How to Align Your Financial Goals and Tax-Saving Investments?
To do this, first, you need to have a clear idea of your financial goals. For instance, your medium-term financial goal may be to save for your child’s education. Your long-term financial goal may be to plan for your retirement.
Having this clarity will help you decide which instruments to invest in. Let us take the first example. If you want to save for your child’s education, you will want to invest in instruments that give you high returns. Fixed deposits may not help you do this. Instead, you can choose to invest in Equity-Linked Savings Scheme (ELSS).
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ELSS is a mutual fund with unique tax benefits. For the highest tax bracket of 30%, ELSS can reduce your taxable income by Rs. 1.5 lakh per annum. Consequently, you can save up to Rs. 46,800 in taxes per year (according to prevailing tax laws). They have a lock-in period of just three years and also provide market-linked returns. They can be a great instrument to save taxes while building a corpus for medium- to long-term goals.
Now, if you want to save for retirement, you have a plethora of options to choose from. You can invest in Public Provident Fund, or Pension Plans. All of these are eligible for tax deductions.
With a little knowledge and planning, you can invest in avenues that align with your financial goals while help you save taxes.
- Start by analysing your financial goals
- Research the different tax-saving investments available in the market.
- Choose investments that align with your goals.
- Begin tax saving as soon as possible instead of putting it off for the last minute.
Tax saving and financial goals do not have to be mutually exclusive. If you plan it well, you can hit both birds with one stone. If you need help planning your taxes while saving for your investment goals, Geojit’s experts can help you with your needs.
