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Your child can provide you relief from tax saving?

Your child can provide you relief from tax saving?

The birth of a newborn is a momentous occasion in a couple’s life. With all the joy and celebrations, also come a host of responsibilities. As you become a parent to a child, his or her well being is the foremost on your mind. So when it comes to giving your child a good education you want to provide for the best.

It is important to start saving early in order to build a corpus for your child’s education. You also need to take the rising inflation into account when choosing an investment option to ensure that your savings do not fall short of the amount required 20 years from now. Here are a few child investment plans that not only help you save tax, but also help you generate higher returns that can help you accumulate the estimated amount for your child’s future education:

  • Public Provident Fund(PPF): This is one of the oldest and most risk free tax saving investments. You can start by investing a minimum of ₹500 to a maximum of ₹1.5 lakh in the name of your minor child. It is a long term investment with a 15 year lock-in period. The principal invested annually qualifies for exemption as per provisions under 80C, however, it cannot exceed ₹1.5 lakh, including contributions made to accounts in your name and that of the child. Interest is compounded annually every year, is tax free and is added back to the principal until the account is active. When your child turns 18, he or she can operate the account in their name, or you can withdraw the entire amount for your child’s higher education.
  • Sukanya Samridhi yojana(SSY): If you have been blessed with a girl, you can open a SSY account. It is one of the child investment plans to empower girls and also comes with a higher rate of interest and sovereign guarantee, at the same allowing you to save tax. A family can open a maximum of two SSY accounts, one for each girl who should not be above 10 years of age at the time of account opening. A minimum annual contribution of ₹250 to a maximum of ₹1.5 lakh is allowed which is eligible for deduction as per Section 80C. Once the girl is 18, you can make a withdrawal of upto 50% of the account balance in the last year for her higher education. SSY has a 21 year lock-in period from the date when the account is opened and deposits need to be made for the first 15 years.
  • Equity linked savings scheme(ELSS): Both PPF and SSY are schemes from the government that fall in the debt category. However, if you are aiming for higher inflation beating returns over the long term, ELSS should be your best bet. These are the only tax saving investments in the mutual funds category. However, they also carry more risk. So research the funds extensively and choose funds in tune with your risk appetite to generate wealth over the long term. They come with a three year lock-in period. Once you are approaching your target, remember to shift to the safety of debt in order to prevent the erosion of the accumulated amount.
  • Unit Linked Investment Plan(ULIP): A ULIP is a dual benefit investment tool that not only provides a life cover but also helps your money grow by investing in the market at the same time providing tax relief. A lump sum or monthly amount is paid out to your family in your absence to meet their immediate financial needs. This ensures that your child continues with his education uninterrupted and your spouse is equipped to handle day to day needs. ULIP child investment plans allow for premium waiver upon the death of the policyholder so that investments do not stop. You can also strategically plan the payouts of the plan by factoring the key milestones in your child’s life such as when he or she completes school or college as per your needs.

These are some of the tax saving investments that you can include in your financial portfolio to meet the future needs of your child when he or she grows up. Invest 4G plan from Canara HSBC Oriental Bank of Commerce Life insurance allows you to invest in 7 funds which range from equity, to debt and even a combination of both. 4 portfolio strategies can be chosen as per your risk preference.

You can also make partial withdrawals to fund any immediate needs and opt for the life option with premium funding benefit which not only disburses a lump sum amount in the event of the insured’s death but also takes care of the payment of future premiums as well. So choose an appropriate investment plan today so that your child can live their dream even when you are not there.

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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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