Want to save upto ₹ 46,800 in tax this year? Here’s how
Who doesn’t like to save tax? And if you can save tax and earn equity-like returns at the same time wouldn’t that be great? That’s where ELSS or equity-linked savings schemes come in.
With ELSS, you can save up to ₹ 46,800 a year in tax if you are in the highest tax bracket.
What’s an ELSS?
An ELSS is just another equity mutual fund with two key differences. Like any other equity mutual fund, an ELSS invests a large portion of its portfolio in equity. But:
1. An ELSS comes with a lock-in period of three years
2. And, more important, it offers tax deductions on investments of up to ₹ 1.5 lakh under 80c of the Income Tax Act.
That’s why ELSS is also called a tax-saving fund.
How can you save tax with ELSS?
To encourage investments, Section 80c of the Income Tax Act allows tax-payers to claim deductions for investments of up to ₹ 1.5 lakh in a wide range of instruments, including fixed deposits, PPF, postal savings and ELSS.
You can invest the amount in one or more of the instruments. For example, you can choose to put the entire ₹ 1.5 lakh in ELSS or you can spread it over across different assets.
The amount you invest under section 80c is reduced from your total taxable income. For example, if your taxable income is ₹ 6,50,000, and you invest ₹ 1.5 lakh in ELSS, then you need to pay tax only on ₹ 5,00,000. If you are in the highest tax slab of 30%, your savings add up to ₹ 46,800 in a year.
Features of ELSS
You can invest in ELSS either through a systematic investment plan (SIP) or lump sum. Take note, however, that each SIP investment in ELSS will have a three-year lock-in
ELSS comes with two options – dividend and growth. Returns from both are taxed differently.
Dividend income from investments in equity schemes are tax-free in the hands of investors, but the mutual fund house pays a 10% equity dividend distribution tax, which reduces your returns
The returns from an ELSS are treated as long-term capital gains since you have held it for over a year. LTCG of up to ₹ 1 lakh are tax-free, and gains of over ₹ 1 lakh are taxed at 10%
This makes ELSS a good choice because it combines equity-like returns with excellent tax-efficiency. What’s more, among the 80c options, ELSS comes with the lowest lock-in period (for example, tax-saving FDs have a 5-year lock in, NSC has a 6-year lock-in and PPF matures after 15 years)
To claim tax benefits, you must invest the entire amount in the financial year. So, if you would like to save tax with ELSS for FY18-19, you must make your investment by March 31, 2019
Teaching Children about Value of Money & Importance of Financial Planning - Teach them young, watch them grow
Inculcate the values of financial planning in your children from a young age. That’s the best gift you can give them on Children’s Day Teaching a child the importance of healthy finances is not just a gift to them but also a means to empower them to have a bright future. While schools are now adding concepts like finance, savings and taxes to their curriculum, it’s still on a basic, informal level. Therefore, it’s important for parents to take the lead in this matter. So, how should you inculcate the value of financial planning in children. Start them young Children start showing strong traces of their understanding and potential at a young age. A three-year-old, just starting to learn her numbers and counting, can easily understand the concept of money. Start with a handful of coins and ask her to count them. Explain to her that 5 counts with the number 1 on it can buy her a small packet of biscuits and 10 coins with the number 2 on it can buy her a sheet of stickers. Make it even more fun by gifting her a piggy bank and tell her that all the money she puts in there belongs to her and that she can use some of it the next time you’re out at the supermarket or in the mall. The Value of Money There’s no point in having money if you don’t know the value of it. Explain to your child that money has to be earned and doesn’t just come along for free. Help your child earn some money the hard way. One fun and exciting way to do this is to get them to do simple, extra chores at home in return for pocket money. Get them to participate in a festive spring cleaning and reward them for it. Then sit down with them and count their earnings. Once you’re finished with the exercise, ask them what they would like to do with the profits. Would they like to save it? Spend it? Donate it? Encourage them to save the earnings to buy something they have been coveting Lead by example Children always emulate their parents. It is thus important to lead by example and exhibit habits and behaviour’s that you would like your child to pick up too. One way to do this is to take a walk through a market and point out things that you need – food, clothes, household supplies – and things you want – expensive mobile phone, state-of-the-art television and designer handbags. Tell them that you’re happy with what you already have, and chances are, they will pick up on this behaviour and learn to be happy with what they have too. Learning the value of money and the importance of financial planning early in life will stand children in good stead later in their life.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
Income Tax benefits
How Insurance can help you save on Income Tax We make several different investments to ensure we are well-provided for in the future. Whether it is your retirement plan, your child’s education plan, or your wedding expenses, your investments are geared towards providing a safe future. A very important investment to make is insurance. Both life and health insurance are essential to protect not only your family but also your investments and income. Life insurance provides a shield to your family in case of any unfortunate scenario, whereas health insurance protects your investments and savings by compensating in case of a medical emergency. Insurance is a smart investment, not only because it provides safety to the family, but also because it provides tax benefits. Let us understand the tax benefits from insurance in detail. What are Income Tax benefits? To reward certain types of investments, the Income Tax Act gives a deduction. A deduction means a sum that can be reduced from your total income. Income Tax is calculated on the net income after considering all different types of deductions. For example, if your total income including interest income and salaried income is Rs. 5,50,000 and you have total deductions of Rs. 2,00,000 under different sections, Income tax will be calculated on Rs. 3,50,000. To put this in a formula, Taxable Income = Total Income – Total Deductions What deductions are available on Insurance? These deductions can be classified into two types: life insurance and health insurance. Life Insurance: The premium paid for any life insurance policy gets a deduction under Section 80C of the Income Tax Act. This deduction is available up to Rs. 1.5 lakh. However, this deduction is available only if the total premium paid does not exceed 10 percent of the sum assured as mentioned in the insurance policy. The deduction under Section 80C is available for all types of insurance: • Term insurance • Unit Linked Insurance Plan (ULIP) • Endowment policies Another deduction available is for a premium paid to any insurance company for a pension plan. This plan gives a monthly pension after the policyholder reaches a certain age. This deduction is given under Section 80CCC of the Income Tax Act. It is restricted to Rs. 1.5 lakh. However, the total benefit under Section 80C and 80CCC is restricted to Rs. 1.5 lakh. Health Insurance: Any amount paid as premium to an insurance company for a health insurance policy gets a deduction under Section 80D of the Income Tax Act. This deduction depends on the person for whom insurance premium is paid. It can be simplified in the form of a table. Premium Paid For Maximum Deduction Allowed Self, spouse, dependent children Rs. 25,000 Parents Rs. 25,000 Self, spouse, dependent children where self and spouse are senior citizens Rs. 50,000 Senior citizen parents Rs. 50,000 Will I have to pay Income Tax on benefits received from the Insurance company? Any amount received on a life insurance policy is exempt from Income Tax. This is provided the premium amount is not more than 10 percent of the sum assured. Any amount received on raising a health insurance claim with the insurance company is treated as a reimbursement of medical expenses and hence is not charged to tax. Disclaimer: IndiaNivesh Insurance Brokers Private Limited: Registered with Insurance Regulatory & Development Authority License No. 144 – Direct Insurance Brokers (Life & General) valid up to 6th April 2021 CIN :- U67200MH2003PTC138850 Reg Office A-302 Peninsula Bussiness Park, Senapati Bapat Marg, Lower Parel- 400013. Disclaimer: We are only distributors of Mutual Funds, IPO, Corporate Deposits & Fixed Income Products & PMS is not offered for commodity segment. "Investment in securities market are subject to market risks, read all the related documents carefully before investing
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