“Death and taxes are inevitable.”
This famous quote coined by Benjamin Franklin, one of the founding fathers of America, does imply the significance of taxes in our daily lives. Unlike death; however, taxes are not as severe as they are portrayed. You can significantly reduce your tax liability if you plan your finances properly and invest for tax savings.
There are many things you do in your daily life that can help you save taxes, albeit you may not fully realise their full potential. Here are a few methods that can help you maximise your tax savings-
Start Early with Investments
Studies show that the earlier you start investing, the richer you get. Instead, the best time to invest is soon after you start earning in your early 20s.
Investing early not only makes you financially independent but also teaches you the much-needed value of maximising savings and creating wealth.
Here’s why starting early with investments is a great idea –
- You will have ample time to recover as if you invest early; you have more time to review your performance against market volatilities
- Starting early allows more time for your investments to grow in value
- You will develop the habit of saving more money by cutting out any unnecessary expenses
- Investing at an early age improves your risk-tolerance
- Early investment will ensure that you remain financially secure in the wake of any emergency
- Probability of reaching financial stability at a relatively young age increases as you start investing early
The key to making successful investments is first to identify the best tax-saving investments that suit your goals and then to remain invested in them for long-term so that you can ensure financial stability for most of your working years.
Know Your Tax Saving Options
One of the biggest mistakes that you can do as a taxpayer is to limit your tax savings within Section 80C of the Income Tax act 1961. To maximise your tax savings, you need to leverage other avenues that can help reduce your tax liability, such as:
- Section 80D (tax deduction on health insurance premium paid)
- Section 80G (Donation to Charitable Causes)
- Section 80CCD (National Pension Scheme)
If you do not have enough knowledge about your earnings, expenses and ways that can help you minimise your tax liability, you would have to pay up a higher amount of tax. Therefore, you need to leverage different tax-saving investments that can help you save taxes.
Diversify tax saving through different instruments
There are many tax-saving options available these days. Therefore, you must analyse the various options carefully and then choose the best tax saving investment that suits your needs the best.
- Unit Linked Insurance plan (ULIP) –Investing in a ULIP plan from reputable insurers such as Max Life Insurance provides both capital appreciation opportunities and life insurance coverage benefits. The money you invest under these plans is tax-deductible under Section 80C, up to a limit of 1,50,000. Also, the gains from the plan are tax-exempt.
- Term Insurance – This plan offers all-around financial protection to your family’s financial future. In terms of tax benefits, the premium paid towards these plans is tax-deductible under Section 80C and can help reduce your tax liability.
- Health Insurance – Premium paid towards a health insurance plan for yourself and your family up to Rs. 25,000 is eligible for tax deductions under Section 80D. Moreover, if you include your parents ageing above 60 years in your health insurance plan, you save an additional Rs 50,000 as taxes.
Other investment options such as Equity Linked Savings Scheme and Public Provident Fund too offer tax benefits. You can include these investments in your portfolio as they make for good investment options to save tax.
Invest in Financial Wellness Instead of Just Tax Saving
Many young professionals and self-employed individuals make the mistake of delaying their tax planning to the end of the financial year. What happens then is that they have barely any time to plan their tax-saving investments.
Eventually, they either end up investing in instruments that only offer tax benefits or invest too little to save only a fraction of their tax-saving potential. In life; therefore, you need to make investments that can help you financially secure your goals and your families well being. To do that, you must choose the best investments for tax savings that not only save your taxes but also help achieve long term goals and financial sustenance.