Finance

What are the Tax-Saving Investment options for Young Professionals?

Considering the fact that the costs of living has went up and due to the high inflation rates in the market, making informed decisions has become all the more necessary. Today investors seek tax saving options that allow them to have flow of funds and get assured returns. One of the most desired outcome is a low risk, tax saving and high return plan where the funds can be invested and high return margin can be assured. Many investment and insurance policies are not taxed under income tax deductions as they are determined as essential costs which are crucial for an individual’s financial stability. Many insurance providers has incentivized their investment policies and made them into tax-saving investment options.

What is the need for tax-saving investment?

When a person invests in tax saving investments from a young age, it builds his/her financial literacy about their financial liabilities and income sources. The primary advantage of incorporating tax saving investments into your portfolio provides you a head start for the future as it provides you longer duration for your investments to start yielding returns when you need them. With growing responsibilities for individuals, such earnings can become an excellent means to meet their financial requirements. This can primarily be achieved by making investment in tax saving option like a term insurance policy. Even if you do not have any dependents or debt now, investing in a term plan ensures that family’s financial needs can be met.

Tax-saving investments also inculcates a healthy habit of setting a part of your income aside for investments that can save taxes and protect your finances. Tax saving investments helps in building personal fund of individuals while also fulfilling their duties as a taxpayer.

Most of the tax saving instruments provides more than just tax benefits as they also function as crucial schemes that create a corpus to meet your short term or long term goals.

Tax-saving options for young professionals

Young professionals value liquidity, high returns and little risk as per their income. Thus, their tax-saving investment options are restricted to allowance benefits that can turn into tax deductions. Some of the tax saving options for a young professional in India can be as follows:

• House Rent Allowance

House Rent Allowance exemption under the Income Tax Act is one of the most common tax saving option for a young professional. One can easily avail of it by providing rent receipts or the rent agreement along with the landlord’s quoted PAN in case their annual rent surpasses 1,00,000 rupees to get the exemption in full.

• Educational Loan

In case a person took an educational loan to provide for their higher studies, the education loan exemption can be a useful tax saving option on the interests paid for this loan. As per Section 80E of the Income Tax Act, a taxpayer can deduct the whole interest amount paid for the loan from their net taxable income. This deduction is permitted only for a period of 8 years.

• Insurance Policy

Making an investment in an insurance policy can be a vital investment decision that an individual can make to secure their future requirements as well as financial obligation. Moreover, it being a tax-saving investment option is an added benefit. It is a universal requirement for people therefore, premiums paid for these insurance policies are eligible for tax exemption. Hence the payouts obtained from it are also exempted from one’s taxable income.

• Tax saving options under Section 80C of Income Tax Act

One of the most sought after tax saving investment options are those that synthesize current coverage with great capital growth. The benefits under Section 80C involves assurance of significant paybacks from the plan after a particular time period that are free from tax liabilities. Few of the common tax saving options are mutual funds, ULIPs, govt. interest schemes, pension schemes etc. Unit Linked Insurance Plans are maintained by premiums paid by the investors. One of the beneficial features of this is that it uses the paid premium and payouts fall under the tax saving investments.

National Pension System^[1] is a government scheme through which you can distribute your money as you want to. It includes diverse combination of asset classes like equity, fixed deposits etc. It is a decent investment option for someone looking to save taxes and increase wealth.

Conclusion

Before investing for tax saving, remember to do so in a way that it allows you to remain in sync with your asset allocation and in a way that it helps you to move closer to your financial goals. Invest as per your financial goals and select tax saving instruments depending on the longevity or duration of your financial goals. Before you choose a tax-saving investment, consider the visibility of their funds and when you would need the same in the future. Financial advisers can help investors in making ideal tax saving investments whether for young investors with shorter investment horizons and investors with longer investment horizons. Therefore consult an expert today to kick start your investment journey.

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