Avenues of tax savings
Tax planning is no child’s play. For the same reason, you could consider engaging a financial adviser who would guide you through the entire process, choosing the tax saving instrument, investing, and then monitoring the performance to make sure you do not go astray.
By composing the right mix of investments for your portfolio, you can exempt more of your income from tax and ensure that you are receiving optimal returns. Section 80C of the Income Tax Act offers a broad range of options, each suited to a different need. However, an Equity Linked Savings Scheme (ELSS) or tax saving mutual fund schemes provide investors tax benefits combined with the opportunity of long-term wealth creation through equity exposure and comes with the shortest lock-in among all tax-saving instruments.
Your Tax Saver
Towards the end of the financial year, most of us start chalking out our tax plans, or the lack of one. If you are a salaried professional, you might get a reminder from your accounts department and if you are self-employed, your accountant would remind you to ‘do your taxes’. Either way, it ends up being at the eleventh hour.
While some of us may have done the smart thing by planning early, the majority might have not.
However, this is merely a ‘tax saving’ exercise and cannot be called ‘tax-planning’. Tax planning is all about planning in advance, which involves evaluating your overall tax strategy and implementing it before the year-end.
In this way, you can make the most out of your tax saving opportunities, which would eventually help you accumulate wealth over the long-term. Tax Planning is an essential part of financial planning and deserves the rightful time and effort.
So when we think about tax-saving as a goal, various options come to mind, that qualify under deduction under Section 80C of the Income Tax Act, 1961, which allows deduction up to Rs. 1,50,000. The options available under Section 80C are as follows:
- Market Linked
- Equity Linked Savings Scheme (ELSS)
- Unit Linked Insurance Plan (ULIP)
- Nation Pension Scheme (NPS)
- Fixed Income
- Public Provident Fund (PPF)
- National Savings Certificate (NSC)
- Tax Saving FDs
- Senior Citizen Saving Scheme (SCSS)
- Employee Provident Fund (EPF)
- NABARD Bonds
- Others
- Life Insurance Premium
- Repayment of house loan (Principal)
- Children’s Tuition Fees
The answer however varies, from person to person, objective to objective, and as per the risk appetite.
With the above tax saving instruments available, the obvious question that arises in our minds is, which option should I opt for? Should I select one of above or should I invest some chunk of money into all or some of the above to claim the deduction? Well, the answer for this question is skewed as every individual has different set of requirements and risk appetite and the statutory lock in period of the investment option. However, it's critical, not to just look at the tax saving criteria of the avenue under consideration, but also it’s potential to generate higher returns.
An Investor Education & Awareness Initiative by HSBC Mutual Fund
Investors should deal only with Registered Mutual Funds, to be verified on SEBI website under Intermediaries/Market Infrastructure Institutions”. Refer to www.assetmanagement.hsbc.co.in for details on completing a one-time KYC (Know Your Customer) process, change of details like address, phone number etc. and change of bank details, etc. For complaints redressal, either visit www.assetmanagement.hsbc.co.in or SEBI’s website www.scores.gov.in. Investors may refer to the section on ‘Investor Education’ on the website of Mutual Fund for the details on all ‘Investor Education and Awareness Initiatives’ undertaken by the HSBC Mutual Fund.
Disclaimer: This document has been prepared by HSBC Asset Management (India) Private Limited for information purposes only and should not be construed as i) an offer or recommendation to buy or sell securities referred to herein or any of the funds of HSBC Mutual Fund: or ii) an investment research or investment advice. Investors should seek personal and independent advice regarding the appropriateness of investing in any of the funds, securities, other investment or investment strategies that may have been discussed or referred herein and should understand that the views regarding future prospects may or may not be realized. This document is intended only for those who access it from within India and approved for distribution in Indian jurisdiction only. Distribution of this document to anyone (including investors, prospective investors or distributors) who are located outside India or foreign nationals residing in India, is strictly prohibited.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.