3 Important Tax Saving Tips for Young Earners

Efficient tax saving can become difficult for even the most experienced investor. It should be hardly surprising that young earners find it challenging to invest in the right schemes to save taxes. Investing tends to yield maximum returns when it is started early. Even for young earners, it is critical to understand the basic tax slabs , exemptions, deductions, etc. This basic knowledge will serve as the first step in investing and income tax saving.

• Equity Linked Saving Scheme (ELSS)- This is a tax saver mutual fund scheme that helps investors to reduce their tax liability under Section 80C of the Income Tax Act 1961 . Investors can qualify for a tax deduction of up to Rs 1.5 lakh by investing in an ELSS . It can be considered as the best option for saving taxes for the long term. Investment in ELSS can also be made with a Systematic Investment Plan (SIP) .
• Term Insurance- Young earners can also consider investing in Term insurance . Term insurance is a life insurance plan that provides coverage and offers financial security to the family. The nominee is paid the policy amount in case of the death of the insured during the policy term. It is worth noting that there are no returns with term insurance.
• Health Insurance- Investing in health insurance is also a great way to save taxes. Health insurance covers the medical, surgical, and sometimes even dental expenses. Policyholders can claim Rs 25,000 for premiums paid for themselves and Rs 25,000 for premiums paid for parents. The limit increases to Rs 30,000 if the parents are senior citizens.

1. Budgeting - The first and the foremost thing to start with this process is to plan the budgeting. Note down the income and expenses and keep track of unnecessary expenditure. Understanding finances is crucial to arrive at the amount that can be spared for investing.
2. Choosing the correct investment medium-
3. Deduction on Education loan- If the young earners are repaying any education loan, they can claim a deduction of the interest component for a period of up to 8 years. They can also claim interest earned on the savings account up to Rs 10,000 under 80 TTA of the Income Tax Act. However, it is worth noting that the maximum deductions under Section 80 are capped at Rs 1,50,000.

Besides the deductions and exemptions, one efficient way to save taxes is to structure the salary in a tax-efficient manner. The EPF , HRA, rental accommodation, and other tax-breaks provision can be used to the best possible advantage. It is crucial to remember that income tax saving plan should be in-line with the overall financial plan.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.