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You are probably in the last quarter of the financial year (Jan – Mar) and looking for tax saving investments.

Do you know the fact that all your tax savings investments can be used for your retirement?

If you don’t know this it’s completely fine and I am pretty sure these 7- 10 mins which you are going to spend on this information will make you ahead of the crowd.

I will be sharing with you all my practical experience.

And as we begin let’s revise some concept

Why do we need Tax Planning?

Please check the below Income Tax Slab for India

Note – This applies to Individuals/HUF

You can locate yourself according to the above-given table and can easily know your Tax Slab’s Rate.

Now comes into the picture – schemes that help us to save taxes.

You should have two objectives in your mind –

1. Reducing Tax liability by investing in tax saving instruments
2. Creating funds for your retirement while investing in tax saving schemes.

If this is crystal clear we can now proceed to the next section.

Income Tax Deductions/Exemptions allowed in Income Tax Computation

Let me show you some examples

Have you ever read your Income Tax Computation Sheet?

If not, please sit with your CA’s, Consultants and have a look at the following things.

There are two categories

  1. Income Sources
  • Salary
  • Other Sources (Rent, etc)
  • Capital Gain (Equity/Security)
  1. Deductions
  • 80C
  • 80CCD (1B)
  • 80TTA
  • 80D
  • STANDARD DEDUCTION u/s 16 (ia)

Note – I have only mentioned few categories under Deductions for the explanation.

Under Section 80C Comes PPF, Tax Saving FD’s, EPF, etc and investing under these schemes helps us to save tax up to 1.5 Lacs.

Some advance concepts I cover in my advance training program.

And today we are just covering the Investments which can create wealth for our retirement and helps us to save taxes.

So let’s get started!

Some of the Tax Saving Instruments in India

  1. PPF
  2. NPS
  3. ELSS  Mutual Funds

PPF (Public Provident Fund)

  • The scheme is backed by the Government of India.
  • This scheme was launched for the unorganised sector.
  • They have a lock-in period of 15 years, but you can extend it after every 5 years. 
  • Currently, FY 2020-21, the Rate of Interest is 7.1 %
  • Every year minimum we can invest Rs. 500 and maximum Rs. 1.5 Lacs.
  • EEE (Exempt – Exempt – Exempt) Category which means your investment, as well as the interest earned, will be completely tax-free which makes PPF very attractive in India.
  • Investment Risk in the PPF is very low. 
  • Initially, it was launched with help of post offices across India.
  • Now you can easily open a PPF account with your bank.

NPS (National Pension Scheme)

  • It is a voluntary retirement scheme launched by the Government of India for the unorganised sector as well as for the professionals so that they can get a pension. 
  • Initially, it was launched only for Government Employees. 
  • But Later on, this scheme was opened to every Indian citizen between the age of 18 and 60
  • You cannot redeem your investments under NPS before 60 years.
  • Partial withdrawals are allowed only for specific reasons – health issues, etc.
  • After 60 years you can redeem your 60% money but the remaining 40% money cannot be redeemed, but it is used to buy Annuity Plans for your fixed income after your retirement. 
  • Every year minimum we can invest Rs. 500 and No Limit for maximum Amount.
  • We can claim up to 1.5 Lacs under 80C.
  • And we can claim additional Rs. 50,000 benefit on NPS which helps us to save tax up to Rs. 2 Lacs 
  • NPS has two tiers – Tier 1 & Tier 2.
  • NPS is divided into Equity, Corporate & Government Bonds
  • So the Interest Rates are very better as compared with PPF.
  • Based on the past performance, Interest Rate were around 10%
  • Better Returns comes with some Risks
  • But unlike ELSS Mutual Funds, in NPS we can control our Risks and choose the amount into Equity, Corporate & Government Bonds.
                        Kyuki Risk hai tho Ishq hai, tabhi tho High Return hai !

Equity Linked Saving Schemes (ELSS) Mutual Funds

  • It a special category of Mutual Funds – (ELSS) that comes with a Lock-in period of 3 Years and investment under this mutual fund helps to save Tax.
  • Every year minimum we can invest Rs. 500 and No Limit for maximum Amount.
  • We can claim up to 1.5 Lacs under 80C
  • Returns are very high when compared to NPS, PPF
  • Since these funds have 80% Equity so the Risk is also very high, as an investor we should always know this.
  • But due to the Lock-in of 3 years, ELSS is still the most preferred choice among other Mutual Funds where all the investors park their money for a longer period. This makes ELSS much stable.
  • After 3 years when we want to withdraw our money, the gain will attract the LTCG(Long Term Capital Gain) Tax i.e 10% for the Investment Gains above 1 Lacs.

Example of LTCG(Long Term Capital Gain)

We get a gain around 1.5 Lacs

LTCG is calculated above the gain of 1 Lacs

So now 10% of 50,000 is Rs. 5000

Rs. 5000 we now have to pay as Tax on the ELSS

Let me know in the comment section how you are feeling right now.

Confident enough that you can now plan your tax savings.

In the past I have done few advance webinars on Tax Panning.

I have also created a course on Tax Planning for the Beginners.

Check this out here.

Where I be will covering following things for you.

  1. List of ELSS Mutual Funds (Where I am Investing)
  2. How to get better returns on your Tax Planning Investments
  3. If Assistance Required, we will do one to one call for 1 hour, where I can do the basic setup on your behalf.
  4. Checklist for Investors (Lifetime Value)
  5. Future updates from my side
  6. Goals for Tax Savings
  7. Some cool resources.

Even if you doing it yourself no problem with that.

Just make sure that while investing you should also know when you have

Step out.

Be warrior, action taker and Learn from Abhimanyu’s mistake.

Sometimes these investments are like Chakravyuh where you know how to

enter but have no exit plans. Or you simply forget to plan.

I made few mistakes long time back and you can learn from that.

Strategies plays a vital role in life.

Please click here to connect.