Who doesn’t want to save tax? Ok, let us rephrase the question. Who wants to give their hard earned money to the government? No one, right? That’s true because keeping inflation in mind a lot of us are anyways finding it challenging to make ends meet from the income that we receive every month.
And if you too are someone who has been taxed on their annual income for the first time, welcome to the club, my dear friend!
Women have a natural tendency to save money. But when it comes to paying taxes, even they are left confused. If you too are confused about how and where to invest in order to save yourself from taxes, we have seven tips for working women which might come in handy while planning your taxes.
1. Section 80C of the Indian Income Tax Act, 1961 has certain tax saving instruments under it where investors can invest up to Rs. 1.5 lakh annually and claim tax deductions. Instruments like ULIPs, health insurance, life insurance, Public Provident Fund, Employee Provident Fund, ELSS, etc.
If you are someone who doesn’t wish to expose their finances to volatile market conditions, you can consider investing in traditional investment tools like Public Provident Funds, National Pension Scheme [NPS], etc.
2. Your employer must have already opened an EPF account on your behalf, but if you want to invest further to build a commendable corpus for your sunset years, you can consider investing in Public Provident Fund [PPF].
PPF is a scheme launched under the purview of Government of India which comes with a minimum lock of 15 years. The rate of interest in low but you are guaranteed returns.
3. Another way you can choose to save tax is Unit Linked Investment Plan or ULIP. ULIP is a blend of investment and insurance where women can invest and claim tax deduction. Since ULIP partially invests in equity markets, returns from ULIP investments are never guaranteed.
4. As per Section 80D an investor can invest in a health insurance and claim tax benefits of up to Rs. 25,000 per fiscal year. But make sure that you buy a health insurance that covers the major illness and diseases.The last thing you want to do is pay from your pocket because the health insurance doesn’t cover a particular ailment or illness.
5. Equity Linked Saving Scheme or ELSS is the only tax saving equity scheme which comes under Section 80C that allows investors to seek long term capital appreciation with a tax benefit.
6. Here’s an example to help you understand how ELSS works. If your gross taxable income is Rs. 12 lakhs, you can invest Rs. 1.5 lakhs in this tax saving mutual scheme and bring down your taxable to Rs. 10.5 lakhs. ELSS comes with a mandatory lock-in of three years. Which means you cannot redeem your ELSS units for at least three years. Investors can actually benefit from this as holding your ELSS investments for the long term might help them beat market vagaries and seek some decent returns. There is no upper limit in ELSS and hence, if you wish you can invest more that Rs. 1.5 lakh in your ELSS scheme. However, you cannot claim tax benefits for more than Rs. 1.5 lakh per fiscal year.
Young working women with moderately high risk appetite who wish to save tax and seek capital appreciation through equity investment can consider investing in ELSS. Women can invest in Equity Linked Saving Scheme through SIP. Systematic Investment Plan or SIP is a systematic approach where women can invest in an easy and hassle free manner. All they need to do is instruct their bank and a fixed is debited from their bank account of a predetermined date every month and transferred to their ELSS fund.
7. ELSS is an equity oriented scheme. Investments made in the equity market are prone to market volatility, and returns are never guaranteed. So it is advisable that investors first identify their risk appetite and invest only within their boundaries. Working women with zero risk appetite must reconsider investing in this tax saving scheme. In case you want to refrain investing in this tax saving equity scheme, you can consider investing in other investment options that come under Section 80C.
Financial independence is something which every working and non-working women seeks. And a tax saving scheme like ELSS holds the potential to them with this freedom.
Tax saver mutual funds like ELSS have the potential to beat market fluctuation. But they need to remember that these investments are risky and impose a risk to their finances. Hence it is better that women first identify their financial goal, investment horizon and risk appetite before making an investment decision.