I know the appealing words “To Tax or not to Tax ” is similar to that of the play on Shakespeare’s most loved expression, however don’t be deceived by it for…..
Come 31st of March every year, all Chartered Accountants are head and hands somewhere down in work proposing to their customers to invest in Tax Saving Investments. This season is exceptionally busy for a Chartered Accountant as he/she makes every effort to save his/her customers hard earned money, by providing sound investment advice.
So if CA’s can see the conspicuous advantage in Tax Planning, why wouldn’t we, the salaried or the business class be able to see merit in tax saving.Tax Planning isn’t sci–fi, something that appears to be stunning, nor is it rocket science that it is so hard to understand. Despite what might be expected, it is simple and conceivable.
We need to invest that extra time in order to save that extra money, by investing in tax saving options.
Saving cash before it is overwhelmed on EXPENSES, is fundamental in order to be able to invest and plan for future. On the off chance that you don’t trust me, ask the subterranean insect that can convey up to 10 times its body weight. Ask it for what reason it works when the season is splendid, as opposed to being cheerful and having a good time without a care on the planet like the grasshopper. It utilizes its capacity to convey and store sustenance for the future i.e. the winter. It has been said nature is the best teacher.
So why wouldn’t we be able to take a leaf from the insect’s book and demonstrate that we too are smart and can do our bit in putting something aside for our own future and for the future of our kids?
Smart planning not just guarantees that we have the security of assets accessible for a later time but additionally it gives us the benefit of a lessened measure of Taxable Income.
By going in for Tax Saving Investments we increase both these advantages. When one does an intensive research into all accessible Tax Saving Investments accessible in the market, there is a high likelihood that one can get confused. In what way, one would ask???
Well you could ask yourself, would it be a good idea for you to invest in a tax saving instrument with a long holding period or would it be a good idea for you to invest in something with lower returns but at the same time guarantees the well-being of your assets?
Should I go in for an investment option that deals with retirement benefits, if I am nearing the retirement age or is it advisable for me to invest to secure my children’s Higher Education and marriage? This can appear to be confusing and thus validating the very point of the need to do Tax Planning.
This is the place a Financial Advisor/Planner, comes into the picture.
He is the person who can direct you in regards to the different aspects of every item, and give you a customized plan for tax saving. As every Investment has its own advantages and disadvantages, it is important to pick the one that best suits your requirement in the long run.
On the other hand, the tax consultant helps you understand the advantages, dis-advantages, benefits and provides you with his/her expert opinion on each Tax Saving Investment.
Many people think “Googling” the point would furnish them with enough data which would empower them to make an educated decision about what to do. But it is not as simple as it seems. Also, not all web related data is 100% reliable. So how would you choose where to invest?
As a lay Investor, my view of a Tax Saving Investment is preferably one in which I could secure high long term gains with a minimal holding period and with least risk.
An alternative to Tax saving instruments is FD’s, the place in which your assets are sheltered and secure, much the same as holding it under your bed. The lock-in period could be 5 years and the Interest earned could also be fluctuating. On a normal, it would either be equivalent to the rate of inflation or lesser. Similarly there is the choice of Insurance Products, both Traditional and ULIPs. While the former is actually a long term investment and does not give high returns, it offers good assurance and cover in the event of an untimely demise. The later has the capability of giving high returns backed with a death cover and the choice to redeem after 5 years, hence ensuring good insurance and wealth creation.
However, one of the best picks is the ELSS (Equity Linked Saving Scheme) and we will find out why –
- ELSS is a mutual fund investment which gives you the option to save tax. You can invest any amount upto Rs.1.5lakhs in different Dividend or Growth option schemes. You can invest a lump sum or via a monthly systematic investment plan (SIP) as low as Rs.500/-.
- It is easier to invest as most banks offer an online facility of investing in Mutual funds. If you are a bank customer, you can easily opt for monthly SIP option.
- It has a minimum lock-in period of 3 years. In order to get the best benefits be invested for atleast a period of 5 years versus other tax saving options like PPF (15 years), fixed deposits (5 years), NSC (5 years) etc. Investors have the option of remaining invested by continuing the SIP or redeeming their investment.
- The dividend earned is not taxable. Since it is for more than 3 years, it qualifies for long term capital gain tax.
- You can invest in different types of ELSS’s depending upon your risk appetite. Some are more aggressive while some are balanced in their approach.
- You can review your portfolio every year and check the profit earned in your portfolio. Give your portfolio time to grow and keep dis-investing in funds that do not show returns over a period of time.
- Since the ELSS fund has fund managers and experts who are well versed with the market conditions, you would be able to take advantage of their expertise by investing in these funds.
It is best to seek the advice of a financial planner and take the best step forward in investing in instruments that suit your requirements.
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