Tax Planning Tips for the Millennials
Being in your 20s and 30s is an exciting time of your life. You commence your career in your early 20s and by the early 30s; you may have your own home. You may even start investing or become an entrepreneur to increase your income.
Unfortunately, when you earn more money, you end up paying higher taxes. Proper planning beforehand to reduce your tax liability by taking advantage of all tax benefits is important.
Before you start looking for ways to save tax, it is important you determine your taxable income. Your total earnings are not taxable because certain deductions are available. Once you determine the taxable income, consider tax-planning options to reduce your liability.
Here are six tax-planning tips for enterprising ‘millennials’ like you.
1.Know the savings amount
Section 80C of the Income Tax Act allows maximum deductions of INR 1.5 lakh for eligible investments. These include National Pension System (NPS), tax-saving fixed deposits (FDs), National Savings Certificate (NSC), Employee Provident Fund (EPF), and Equity-Linked Savings Scheme, popularly known as ELSS funds. However, you may not need to invest the entire INR 1.5 lakh because there may be certain deductions such as insurance premium or contribution to EPF that is compulsorily made from your income. Therefore, know the amount you need to save according to section 80C before making investments.
2.Avail of health insurance
When you are young, you may be healthy, and do not worry about medical expenses. However, as you grow older, there is a higher risk of suffering from medical conditions. Furthermore, health insurance premium increases with your age. In addition to saving the premium amount, health insurance premium is eligible for tax benefits as per section 80D of the Income Tax Act. An amount of up to INR 25000 for health insurance availed for self, spouse, and children are eligible for tax deductions. The amount increases to INR 30000 for senior citizens.
3.Retain bills and receipts
Your salary may include benefits such as Leave Travel Allowance (LTA), medical expenses, and telephone bills. To avail of all these benefits, you will need to show proof and therefore, you must retain various bills and receipts. You may retain these documents digitally to ensure these are not lost or damaged.
4.Life insurance cover
When you first start your career, you may not consider life insurance cover as important because you have no dependents. However, you may have certain liabilities like an education loan. In case of your untimely demise, your parents may have to repay the loan, which may cause financial distress for them. As you grow older, you will get married, and have a family. Have you considered what would happen to them in case of your premature demise? To avoid this situation, avail of a term insurance plan to secure your loved ones. In addition to financial security, the insurance premium is eligible for tax benefits according to section 80C of the Income Tax Act.
5.Regularly save
You may choose from several of the best tax saving investment options to reduce your liability. You may opt for fixed-return products like NSC, FDs, the Public Provident Fund (PPF), and EPF. Alternatively, you may choose market-related instruments that deliver higher returns albeit at an increased risk. Some of these include NPS and ELSS funds.
6.Avoid inaccurate products
Financial instruments like Unit-Linked Insurance Plans (ULIPs) or traditional endowment policies also offer tax benefits under section 80C of the Income Tax Act. However, these often deliver lower returns when compared to other best tax saving investment options. Therefore, investing in such instruments must be avoided.
There are several ways to reduce your tax liability. It is important you understand and evaluate all these options because tax saved is income earned. You may seek expert advice from experienced professionals to maximize your benefits.
Alternatively, you may use technology to learn ways to save tax. Advanced investment engines like the ARQ investment engine, an integral highlight in Angel Wealth’s mobile application do just this for you. ARQ uses technically advanced quants and algorithms to analyze over a billion data points. These are then matched with your financial goals, risk appetite, and investment horizon to offer customized recommendations.
When compared to other similar investment engines, ARQ executes the entire analysis through automated algorithms. Therefore, there is no human intervention eliminating all bias. You receive recommendations that are made by machines, which ensure these are the most beneficial options for your requirements.
Download the Angel Wealth mobile app today, start investing to reduce your taxes, and save money.
