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40-year-old salaried professional seeks tax-saving advice through mutual funds

Moneywize

Moneywize   |174 Answers  |Ask -

Financial Planner - Answered on Sep 23, 2024

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Asked by Anonymous - Sep 21, 2024Hindi
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I’m Kunal from Mumbai. I’m 40, a salaried professional with two children. How can I optimize my tax savings through mutual funds, PPF, and NPS for the long term?

Ans: To help you optimize his long-term tax savings, a well-rounded approach leveraging mutual funds (ELSS), PPF, and NPS will provide both tax efficiency and growth potential, balancing risk and security. Here’s a comprehensive strategy:

Key Investment Options:

1. Public Provident Fund (PPF):

• Tax Deduction: Up to Rs 1.5 lakh under Section 80C.
• Lock-in: 15 years, providing low-risk, government-backed returns (around 7.1%).
• Strategy: Maximize PPF contributions to Rs 1.5 lakh annually for stable, long-term, and tax-free growth.

2. National Pension System (NPS):

• Tax Deduction: Rs 1.5 lakh under Section 80C and an additional Rs 50,000 under Section 80CCD(1B).
• Equity Exposure: NPS offers flexibility in equity allocation, providing the potential for higher long-term returns.
• Strategy: Contribute Rs 50,000 for the additional tax benefit and build a retirement corpus, balancing equity and debt for moderate growth.

3. Equity-Linked Savings Scheme (ELSS):

• Tax Deduction: Up to Rs 1.5 lakh under Section 80C.
• Lock-in Period: 3 years (shortest under 80C).
• Growth Potential: Higher returns due to equity exposure.
• Strategy: Start a Systematic Investment Plan (SIP) in ELSS funds to benefit from tax savings and market-linked growth over the long term.

4. Comprehensive Plan for you:

a. Maximizing Tax Benefits:

• Contribute Rs 1.5 lakh to PPF for safe, consistent returns.
• Invest Rs 50,000 in NPS to take advantage of the additional tax deduction under Section 80CCD(1B) and build a retirement corpus.
• Allocate any remaining eligible tax-saving contributions to ELSS to optimize growth under Section 80C.

b. Diversified Investment Strategy:

• PPF: A risk-free option with guaranteed returns, perfect for long-term, low-risk growth.
• NPS: A moderate-risk option with the potential for higher returns through equity exposure, focusing on retirement planning.
• ELSS: A higher-risk, higher-reward option for long-term wealth creation and tax savings.

c. Additional Tax-Saving Measures:

• Health Insurance Premiums: Claim up to Rs 25,000 (or Rs 50,000 if covering senior citizen parents) under Section 80D.
• Home Loan Interest: Deduct up to Rs 2 lakh under Section 24(b) for home loan interest payments.

d. Tailored Recommendations:

• PPF: Max out the Rs 1.5 lakh limit to secure risk-free growth.
• NPS: Contribute Rs 50,000 annually to build a retirement corpus while enjoying additional tax benefits.
• ELSS: Invest the remainder of your Section 80C limit in ELSS to benefit from equity market growth.
• Regular Monitoring: Review and rebalance your portfolio as your financial goals evolve to ensure optimal growth and tax savings.

By following this balanced and diversified strategy, Kunal can optimize his tax savings while securing a solid financial future for his long-term goals.
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Ramalingam

Ramalingam Kalirajan  |7720 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 05, 2024

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I am a 30 year old individual currently earning approx 1.1 Lakhs (in hand) monthly. I am currently investing in 2 tax savings funds (under 80C) - Parag Parikh Tax Saver Fund and Quant Tax Plan (Each 3500 INR per month). Total is 7000 per month in tax savings ELSS. (Remaining in 80C is covered from EPF and term insurance premium). Please tell me if I should continue these 2 funds or you have a better suggestion. In case of suggestions, please share the fund to be replaced with which fund. Also, I am investing in 4 non-tax savings funds - SBI small cap, Nippon India small cap, ICICI prudential bluechip fund, Axis Mid cap Fund (each 2500 INR that is total of 10000 INR per month). I want to continue investing for a long time. I can increase the amount from 10000 to 15000 monthly. Please suggest if I should continue these SIPs or you want to change and give some suggestions. In case of suggestions, please share the fund to be replaced with which fund.
Ans: For tax-saving investments, it's wise to continue with the Parag Parikh Tax Saver Fund due to its consistent performance and diversified portfolio. However, consider replacing the other tax-saving fund with a more established option like a well-rated ELSS fund for potential higher returns.

As for non-tax saving funds, your current selection is diversified across different market segments, which is good. To enhance your portfolio, you might want to consider adding a flexi-cap fund to gain exposure to various market opportunities. Increasing your SIP amount is also a good move for long-term wealth accumulation.

..Read more

Ramalingam

Ramalingam Kalirajan  |7720 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 16, 2024

Asked by Anonymous - Jul 28, 2024Hindi
Money
I would like to seek your advice on tax-saving options. My yearly income is approximately ?35 lakhs. Every month, ?28,000 is deducted for PF. I have medical insurance with a premium of ?50,000 and I contribute to NPS over 12 months. Additionally, I have a home loan with an annual interest payment of ?2 lakhs. Could you please suggest some ways to save on taxes? Thank you for your assistance.
Ans: With a yearly income of Rs. 35 lakhs, you fall into a higher tax bracket, so it's essential to optimise your tax-saving strategies.

Let's explore various options to help you reduce your taxable income and increase your savings.

1. Utilising Section 80C Deductions
Section 80C offers deductions of up to Rs. 1.5 lakh on various investments and expenses. Given your salary, it's vital to ensure you're fully utilising this limit.

Provident Fund (PF) Contributions:

Your monthly PF deduction of Rs. 28,000 amounts to Rs. 3.36 lakhs annually. However, only Rs. 1.5 lakh of this can be claimed under Section 80C.
National Pension System (NPS):

Contributions to NPS are eligible for an additional Rs. 50,000 deduction under Section 80CCD(1B). This is over and above the Rs. 1.5 lakh limit under Section 80C.
Home Loan Principal Repayment:

The principal repayment of your home loan is also eligible for deduction under Section 80C. Ensure you include this when calculating your total 80C limit.
Other 80C Investment Options:

If you have not exhausted your Rs. 1.5 lakh limit under Section 80C, consider investing in other eligible options such as Public Provident Fund (PPF), Equity-Linked Savings Scheme (ELSS), and life insurance premiums.
2. Leveraging Section 24 for Home Loan Interest
Interest Payment Deduction:
You can claim a deduction of up to Rs. 2 lakh on the interest paid on your home loan under Section 24(b). You've mentioned an annual interest payment of Rs. 2 lakh, which you can fully utilise to reduce your taxable income.
3. Maximising Health Insurance Benefits under Section 80D
Health Insurance Premium:
You are already paying a premium of Rs. 50,000 for medical insurance. Under Section 80D, you can claim a deduction for health insurance premiums up to Rs. 25,000 for yourself, spouse, and dependent children.
If your parents are senior citizens, you can claim an additional deduction of Rs. 50,000 for their health insurance premiums. If they are not senior citizens, the limit is Rs. 25,000.
4. Additional Deductions under Section 80E for Education Loans
Education Loan Interest:
If you have an education loan for yourself, spouse, or children, you can claim a deduction on the interest paid under Section 80E. This deduction is available for up to 8 years or until the interest is paid off, whichever is earlier.
5. Contributing to the National Pension System (NPS)
Additional Deduction for NPS Contributions:

Besides the Rs. 50,000 deduction under Section 80CCD(1B), you can also claim a deduction for your own NPS contributions under Section 80C, as mentioned earlier. This can be part of your Rs. 1.5 lakh limit.
Employer Contribution:

If your employer contributes to your NPS account, it can be claimed as a deduction under Section 80CCD(2). This is an additional deduction and does not fall under the Rs. 1.5 lakh limit of Section 80C.
6. Donations and Charitable Contributions under Section 80G
Eligible Donations:

Contributions to certain charitable organisations and relief funds are eligible for deductions under Section 80G. The deduction percentage varies depending on the organisation and the donation amount.
Claiming Deductions:

Ensure you have valid receipts and the organisation is eligible under Section 80G before claiming the deduction. This can help reduce your taxable income while contributing to a good cause.
7. Claiming Deductions for Savings Account Interest under Section 80TTA
Interest on Savings Account:

If you earn interest on your savings account, you can claim a deduction of up to Rs. 10,000 under Section 80TTA. This deduction is available for individual and HUF taxpayers.
Interest on Fixed Deposits (FDs):

Interest on FDs is fully taxable. However, senior citizens can claim a deduction of up to Rs. 50,000 on interest income from FDs, savings accounts, and post office schemes under Section 80TTB.
8. Avoiding Common Tax Mistakes
Accurate Record Keeping:

Maintain records of all your investments, insurance premiums, home loan statements, and other eligible expenses. Accurate records ensure that you claim all possible deductions and avoid unnecessary tax liabilities.
Tax Planning Throughout the Year:

Tax planning should be an ongoing process, not just something to consider at the end of the financial year. Regularly review your investments and expenses to maximise your tax-saving opportunities.
9. Final Insights
By strategically planning your investments and expenses, you can significantly reduce your tax burden. Ensure you are fully utilising deductions under Sections 80C, 80D, and 24(b) for your provident fund contributions, home loan interest, and medical insurance.

Consider contributing to the National Pension System (NPS) for additional tax benefits and explore other options like charitable donations under Section 80G. With careful planning, you can achieve substantial tax savings and improve your financial well-being.

It's always a good idea to consult with a Certified Financial Planner to tailor these strategies to your specific situation. They can provide detailed guidance based on your financial goals and current tax liabilities.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

..Read more

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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