A tax-efficient investment helps in wealth creation, if you stick with it till the end.
Finance Minister Nirmala Sitharaman has presented the Union Budget 2019 and its time to save and invest the right way. Focus on tax efficiency if you want high return on your investments. Tax efficiency tells you the returns you get after all taxes are paid.
Choose investments, which give the best return after taxes and match your financial goals. A tax-efficient investment helps in wealth creation, if you stick with it till the end.
Investments in PPF, your contribution to EPF, tuition fees paid for up to two children, life insurance premium paid for self, spouse and children, home loan principal repaid, investments in NSC, NPS, ELSS, Sukanya Samriddhi Yojana, 5-Year Post Office Time Deposits, SCSS and Tax saving FD are some of the investments which enjoy the Section 80C tax deduction up to Rs 1.5 lakh a year. This is a collective deduction and you must invest based on risk profile.
If you are an aggressive investor who seeks high return at high risk, invest in ELSS which is a tax saving mutual fund or the National Pension System popularly called NPS. The Finance Minister is encouraging aggressive investors to save tax. The Union Budget has provided the much awaited Exempt-Exempt-Exempt (EEE) tax status to the National Pension System.
After this Budget, the entire 60% corpus allowed to be withdrawn from NPS at retirement is tax exempted, while 40% has to be invested in an annuity plan. Prior to this only two-thirds of the corpus withdrawn at maturity was tax exempt and the remaining one-third was taxed.
The Finance Minister has made a proposal to bring CPSE ETFs under the ELSS umbrella. Investments in CPSE ETFs would be eligible for a tax deduction within the Section 80C limit and enjoy ELSS type tax benefits. Long-term investments in CPSE ETFs also offer tax-efficient returns.
Conservative investors may invest in PPF, Post Office Time Deposits or NSC which offer higher returns than FDs and are also tax-efficient. Senior citizens can look at Senior Citizens Savings Scheme to save taxes under Section 80C.
Health insurance premiums paid for self, spouse and children enjoy Section 80D tax benefits up to Rs 25,000 a year. Senior citizens enjoy a higher deduction on health insurance premiums of up to Rs 50,000 a year. If you avail health insurance plans for self, spouse and senior citizen parents, you enjoy a total tax deduction of Rs 75,000 a year.
The interest you earn on the savings bank account and post office savings account enjoy a tax deduction under Section 80TTA, up to Rs 10,000 a year. You can show this amount as ‘Income from other sources’ and then claim the deduction. If you are a senior citizen, the interest you earn on deposits made with banks and post offices be it savings account or term deposits, enjoy a maximum deduction under Section 80 TTB, up to Rs 50,000 in a financial year.
The Union Budget 2019 helps you buy an affordable house. It has been proposed to increase the deduction that you can claim on interest paid on loans availed for affordable housing, from Rs 2 lakh under Section 24(b) to Rs 3.5 lakh a year. This additional Rs 1.5 lakh deduction a year can be availed only on houses valued up to Rs 45 lakh.
The deduction can be availed only on loans taken up to March 31, 2020. You enjoy a total benefit of Rs 7 lakh over a 15-year loan period. This additional tax deduction will help you buy an affordable house in tier-2 or tier-3 cities.
The Government wants to boost the use of electric vehicles to control pollution and save petrol and diesel. The Government is offering an additional income tax deduction of Rs 1.5 lakh a year on interest paid on loans availed to purchase electric vehicles. If you avail a loan to buy an electric vehicle, you can save Rs 2.5 lakh in interest, depending on your income tax bracket across the duration of the loan. The Government has also moved the GST council to lower the GST rate on electric vehicles from 12% to 5%. This would bring down the cost of electric vehicles, and along with tax benefits, help the taxpaying category.
The insurance penetration in India at 3.69% is one of the lowest in the world. Insurance penetration is the first year new business premium to GDP. The Government has raised FDI in insurance broking to 100% from the earlier 49%. This move would benefit insurers investing in technology and digital solutions, helping them grow and expand. It would have a multi-fold impact and create a sustainable insurance sector, bringing insurance penetration closer to the global average of over 6.1%.
Insurance surveyors, loss assessors, third party administrators, web aggregators and corporate agents would benefit from higher FDI, along with crores of Indians.
Insurance intermediaries offer risk management solutions which are good for the economy at large. Bringing more FDI into the insurance sector would give it parity with private banks and other financial sectors. There would be better service standards in alignment with global trends and practices. This would benefit policyholders and increase insurance penetration in the country.
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The author is the CEO and Founder at IndianMoney.com