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ULIP and Other Tax Saving Investments ideal in Your 30s

ULIP and Other Tax Saving Investments ideal in Your 30s

ULIP for tax saving

The 30s are the most financially transforming years of life. Your career is almost set, income is steady and you have learned much about your goals, savings habits and investment needs. This is also that time of life when your family responsibilities are catching up with you and new financial goals are emerging.

This is also the time when you need to seriously consider tax implications of your long-term investments and vice versa. Therefore, here we talk about the right tax-saving plans available for you.

Best Tax Saving Investments

Tax saving is a regular exercise with your tax liability rising every year. Also, it is not something where you want to spend a lot of time every year. So, you need to use tax-saving investments in a way that they continue for a long-period and demand less attention from you.

Fortunately, most tax-saving investments are suitable for long term investment as almost all of them have a lock-in period for withdrawals. Also, the best tax-saving investments will provide the following three exemptions:

  • The investment amount is tax-exempt
  • Interest paid out or credited in the investment is tax-exempt
  • Maturity proceeds are also tax-exempt

Such investments are also called EEE investments, meaning exempt investment, exempt interest and exempt maturity value.

EEE Tax Saving Investments In India

Fortunately, in India, we have several EEE investment options. Each of these investments offers different risk-return profiles and features. Some of the most popular EEE investments are:

  • ULIPs (Unit Linked Insurance Plans): A unique life insurance plan with feature-rich investment options
  • PPF (Public Provident Fund) & SSY (Sukanya Samriddhi Yojana): Similar tax-saving profile, except you, can only open SSY if you have a daughter. SSY is a great way of accumulating wealth for your daughter.
  • NPS (National Pension Scheme): NPS tier-I account is a dedicated retirement investment plan. NPS gives your retirement savings a boost of equity market allocation and age-based portfolio management plan. On maturity, you need to convert at least 40% of the total corpus to pension.
  • ELSS (Equity Linked Savings Scheme): ELSS is a tax saving investment for aggressive investors. ELSS is a pure equity mutual fund with 36 months of the lock-in period.
Best Tax Saving Investment

What Makes ULIPs is the Best Tax Saving Investment?

As you can see ULIPs is not the only investment with EEE tax status. So, what do ULIPs offer that sets them apart from other equally tax-efficient investments?

Here are the unique aspects of ULIPs which sets them apart:

1. Invest as per Your Risk Appetite

You can allocate your investment to multiple funds based on your risk appetite and comfort. This feature of ULIP is especially useful when you are investing for more than 10-year period.

You can allocate your funds into equity, debt, liquid and balanced funds. The best part is that allocation to any of these funds or switching between the funds during the policy period does not attract tax liability.

2. Use Professional Portfolio Management Strategies

ULIP investment plans offer multiple fund management strategies for you to manage your investment in the plan. You can use these strategies to automate your asset allocation and benefit from the market opportunities.

For example, Canara HSBC OBC Life’s Invest 4G plan offers three strategies to manage your asset allocation during the investment period. A fourth strategy allows you to safeguard your corpus in the plan as you approach maturity.

Automated portfolio management strategies give you better control over your asset allocation without losing the tax-efficiency.

3. Safety for the Goal

ULIPs are a type of life insurance plans, and insurance means financial stability. On the same principles, Invest 4G ULIP plan protects the financial goal for which you started investing. The plan receives all remaining instalments from the insurer in case of your early demise and the corpus continues to grow.

Your family will receive the maturity value to meet the goal as you originally intended. This feature makes ULIPs like Invest 4G one of the best options to fulfil your child’s education and marriage goals.

Also, if you use ULIP plan to save for your retirement you protect your spouse from inadequate retirement corpus in case of your early demise.

4. Boost Your Portfolio

ULIPs are one of the best investments for long-term investors. Investors who regularly invest in ULIP plan for more than five years can receive bonus units. Invest 4G plan from Canara HSBC OBC Life has two such boosters, which enhance your portfolio value over time.

The longer you stay invested in the plan the more benefit you receive from the boosters.

5. Financial Safety for Family

ULIP is a life insurance and thus, it goes without saying that it has a life cover component as well. The life cover works so far as:

  • Your total investment in the plan or fund value is less than the insurance cover, or
  • You have selected the goal protection option

If you have opted for the investment to continue as intended after your demise, your family receives the sum assured of the policy as death claim. After the sum assured has been paid out, the investment continues till maturity.

However, if you only chose the death benefit in the plan, ULIP will stop after paying the death benefit to the family.

Lock-in Period & Other Benefits

ULIPs also carry a lock-in period for withdrawals from the plan, like all other tax-saving investments. The lock-in period is of five years in ULIPs. However, the death benefit is still payable.

You can withdraw part of total available funds from the ULIP after the lock-in period is over. So, in a way despite being a long-term investment option, ULIPs give you enough flexibility to use your money.

Speak to an insurance specialist now!

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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