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Top tax saving investment offers for risk takers

Top tax saving investment offers for risk takers

top tax saving investment offers for risk takers

Balancing risk-taking and tax saving is not an easy task. But it is not impossible either. In order to do so, you simply need to understand the fundamentals of various financial instruments and invest wisely.

Before discussing the best tax saving instruments, it is imperative to assess your risk profile. You are in the category of a risk-taker if you are willing to be an aggressive market investor. You can only be a high-risk taker, if you have a large capital, limited liabilities, surplus assets as well as a long-term investment horizon. Once you’ve determined that you fit the profile of a high risk-taker, you can begin investing in tax-saving instruments

Here is a list of the best tax-saving investments for a risk-taker:

1.Unit Linked Insurance Plans (ULIPs):

Unit Linked Insurance Plans offer investors the two-pronged benefits of life insurance and high market-linked returns. While a portion of your premium is dedicated to providing you with life cover, the rest is invested in equity, debt or mixed funds. You don’t require in-depth knowledge of the financial market, as these funds are managed by professional fund managers. ULIPs also have the key feature of fund switching, where you can switch the investments from debt to equity or vice versa. If you are a risk-taker, then you can select equity-linked funds, which can garner high returns over a long-term investment horizon. These funds have a fixed lock-in period of 5 years.

While ensuring high returns for high risk-takers, Unit Linked Insurance Plans provide one with significant tax benefits. The premiums paid for these plans are tax-deductible under Section 80C of the Income Tax Act. The payouts received from your ULIPs are also eligible for tax exemptions, as per Section 10(10D) of the Income Tax Act.

2. Equity Linked Savings Scheme (ELSS):

These are mutual funds schemes investing primarily in equities. As compared to traditional investment options, like Fixed Deposits and National Saving Certificate (NSC), ELSS offers higher returns. You can also choose to invest in Equity Linked Savings Scheme via Systematic Investment Plans (SIPs), where a fixed amount has to be contributed regularly. These funds have a lock-in period of three years, the lowest among most tax-saving plans.

In ELSS, you can avail tax deductions up to Rs 1.5 lakh under Section 80C of the Income Tax Act.

3. Annuity Plans:

This is another tax-saving option for high risk-takers. These pension funds invest both in equity and debt instruments. Along with tax-savings, these funds provide you with a retirement corpus. The returns from these funds are contingent upon the proportion of investment in debt and equity instruments, besides the management of funds in different market conditions. You can either invest in deferred annuity plans (plans which begin your pension payouts after a buffer period) or immediate annuity plans (plans which begin your pension payouts immediately). The contribution made towards your pension funds are tax-deductible up to Rs 1.5 lakh under Section 80CCC of the Income Tax Act. The tax treatment of the accumulated amount and the maturity proceeds will depend on the type of plan you have opted for.

4.National Pension Scheme:

The union government introduced this scheme in 2009 to provide social security to Indian citizens post-retirement. Regulated by the Pension Fund Regulatory and Development Authority (PFRDA), this scheme is open to all Indian citizens between the age of 18 and 60 years. Employees from the private, public and unorganized sectors—except defense personnel and officers—can invest in the NPS. After opening an NPS account, you are provided with a unique Permanent Retirement Account Number (PRAN).

There are two accounts in the NPS: Tier I Account and Tier II Account. While Tier I is a compulsory account, where withdrawals are permitted only post-retirement, Tier II is a voluntary account allowing withdrawals. You can invest in the NPS, either in the ‘Active’ mode or the ‘Auto’ mode. If you are a risk-taker, then you can invest in various asset classes, including equities. You must, however, remember that the government has capped equity investments to a maximum of 75%.

Under the NPS, you can avail of tax deductions of up to Rs 2 lakh under sections 80CCD(1) and 80 CCD(1B) of the Income Tax Act.

Conclusion: Thus a risk-taker can avail a wide variety of tax saving schemes like ULIPs, ELSS, pension funds and the NPS. The Invest 4G plan from Canara HSBC Oriental Bank of Commerce can be an ideal plan for both conservative and aggressive investors. Not only does the plan provide unbeatable features, like loyalty additions and wealth boosters, it also offers a slew of portfolio management strategies to get the best returns for investors with varied risk appetites.

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Annual Income (In Lacs)

FAQs Related to Tax Saving

First of all, your gross total income is taken into account and all applicable deductions/exemptions are deducted out of it, the resultant amount is the net income, upon which the Income Tax is calculated, on the basis of income tax slabs that are announced each year in the Union Budget.

How much tax you can save depends on your financial portfolio and profile. The most common avenue for tax-saving is Section 80C, which allows you deductions up to Rs 1.5 lakh in your taxable income. The implication is that you can save up to Rs 46,800*in taxes in a year, depending upon the income tax slab you belong to. Similarly, other avenues like interest on loans, health insurance etc also provide deductions capped at a certain amount.

*Tax saving of Rs.46,800/- is calculated at the highest tax slab of 31.2% (including 4% Cess) for an individual assessee on life insurance premium of Rs.1.5 lakh, who is having taxable income upto Rs.50 lakhs.

You can choose from many investments that are tax-exempt: not an exhaustive list, but includes Equity Linked Saving Scheme (ELSS), Public Provident Fund (PPF), life insurance plans, Unit Linked Insurance Plans (ULIPs), Sukanya Samriddhi Yojana, Senior citizens Savings scheme, National Pension Scheme (NPS), tax-saving bank FDs.

First of all, make investment of Rs 1.5 lakh in investments instruments covered under Sections 80C to reduce your taxable income. Claim deductions for the interests paid on home loan and/or education loan if any. Get a health insurance policy and claim for other medical expenditure like preventive medical healthcare check-up, expenditure on rehabilitation of handicapped dependent relative, among others. Mainly, the idea should be finding out which tax saving avenues fit well with your larger financial goals and invest in them!

The maximum limit of investment that will reap the benefits of deduction from taxable income under Section 80C is Rs 1.5 lakh.

There is no limit to the number of tax-exempt investments one can have in a financial portfolio. However, it is important to note that there is a limit to how useful any instrument can be for the purpose. This is because the amount of deduction that can be claimed for specific instruments is capped at a maximum value. At the same time, keep your financial portfolio balanced so that it also provides safety, returns and liquidity.

First of all, make use of the Rs 1.5 lakh deduction allowed under Section 80C. This can be done by making investments in life insurance premium, Equity Linked Saving Scheme (ELSS), Public Provident Fund (PPF), Unit Linked Insurance Plans (ULIPs), Sukanya Samriddhi Yojana, Senior citizens Savings scheme, National Pension Scheme (NPS), among others.

Second, make use of the deductions available in respect of health insurance and other medical expenses. Under Section 80D of the Income Tax Act, 1961, a deduction of up to Rs 25,000 is allowed in a year in terms of the premium paid towards a health insurance policy of Self and your family i.e., Spouse and children. This can include preventive healthcare check-ups too upto Rs 5000/-. Under section 80D you can also claim additional deduction upto Rs. 25000/- (Rs. 50000 in case of senior Citizen) for health insurance of your parents.

Apart from Section 80C, various deductions and exemptions has been provided under the provision of Income Tax Act, 1961 like deduction under section 80D can be claimed for the payment of health insurance, deduction upto Rs 50,000 on home loan interest under Section 80EE. Any donations you make to charitable institutions are also allowed as deduction under Section 80G, subject to condition prescribed therein.

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