Have received any unexpected gift during the year for which you missed tax planning? You can make investments specified in Section 80C of the Income Tax Act.
If you have received any unexpected gift during the year for which you missed tax planning, you can make investments specified in Section 80C of the Income Tax Act. Section 80C allows a deduction of up to Rs 1.5 lakh per financial year. You can invest in a single tax-saving investment or many of them. You may choose to invest in fixed income investment schemes such as Public Provident Fund, National Savings Certificate, or the tax-saver fixed deposit to save taxes under Section 80C.
However, Equity Linked Savings Scheme (ELSS) is one of the best investment options with the lowest, three years of lock-in. It invests primarily in stocks and has the potential to offer inflation-beating returns over time. It has the shortest lock-in period of three years among all tax-saving investments under Section 80C.
You can spread your investment in the ELSS through the systematic investment plan or SIP across market levels and average the purchase price of units over time, called rupee cost averaging. ELSS is a tax-efficient investment for those in the highest income tax bracket. They are taxed as equity-oriented funds where the long-term capital gains up to Rs 1 lakh are tax-free.
But if you are not worried about tax saving and are looking for short-term investment options, you can invest in short-term mutual funds. Short-term mutual funds are debt funds that lend to companies for 1-3 years. These funds mostly take exposure to companies with a proven record of repaying the loans on time and have sufficient cash flows from their business operations that justify their borrowings.
They are less riskier than equity and equity mutual funds and tend to deliver better returns than bank deposits. Any income earned from debt funds is taxable under ‘income from other sources’. However, if you redeem the funds after 36 months, you need to pay tax on capital gains at 20% with indexation. If the funds are redeemed before 36 months, the capital gains are taxable at regular tax slab rates.
You can choose to create a portfolio of investments with a combination of debt funds and specified tax-saving schemes. So, the overall portfolio will help maximise your returns, and part of it will contribute to tax savings.
(The author is Founder and CEO, Clear)