How Can You Choose the Tax Saving Plan Best Suited for You?

Choosing the right tax saving plan requires meticulous research and a holistic understanding of the various available products. While tax planning should ideally begin at the start of the financial year, most people take it during the last quarter of the financial year.

Each tax saving plan has a definite structure which serves a larger purpose. You must understand it before committing.For instance, while investment in life insurance qualifies for tax exemption, its primary objective is to hedge your dependents against financial insecurities arising in your absence. Knowing the function of a tax-saving product can help you make an intelligent choice.

When you choose a tax-saving plan, make sure it aligns with your financial goals. Aligning tax-saving with financial goals can do wonders to your overall financial health. For example, if you want to create wealth and bring down your tax liability at the same time, you can invest in tax saving mutual funds such as ELSS .ELSS or equity-linked savings scheme (ELSS) invests primarily into equities which can deliver inflation-beating returns in the long run. At the same time, investing in ELSS qualifies for tax exemption under section 80C of the Income Tax Act, 1961.Being invested for the long haul in ELSS helps you compound your wealth and build a corpus for life goals such as children’s higher education, their marriage, and even your retirement.

Before investing in any tax-saving product, it’s important to read the fine print to understand the terms and conditions. For example, there are several tax-saving products which require a large upfront payment for several years.Before investing in them, it’s important to take into account your cash flow and liabilities. It’s advisable to invest in them only if you have the flexibility to do so, and can remain committed. Else, this can be a cause of major concern later.

Knowing your investment horizon will help you zero-in on the right product. While it’s true that you want to lower your tax liability, there will be a point in time when you might need this money. For instance, if you want the money after 3 years, you can opt for ELSS, which have a lock-in period of 3 years.However, note that ELSS investment gives the desired results only if you remain invested for the long term. Similarly, if you need the money after 5 years, you can opt for tax-saving bank fixed deposit.

As evident, choosing the right tax-saving plan requires careful planning and meticulous approach. If you find it difficult, seek professional advice.Ready to make the most of your money? Start your tax planning journey now!

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.