I am working with a private organisation and my monthly salary is Rs 70,500. Kindly note my 80C is full. 80D is also full. Will invest in NPS also. Still I have to pay tax.

Please suggest any other investment where I can invest and save tax.

Ans: Hi Kalim, There are multiple tax saving options you can use.  Following are few of the popular tax saving options available:

You can save tax up to 1.5 lakhs under section 80C by investing in PF, PPF, ELSS, ULIP, Insurance, home loan principal repayment, etc

Investing in NPS helps you to save further of 50k under section 80CCD which is over and above 1.5 lakhs under section 80C.

Section 80D provides income tax deduction on medical insurance premium paid for self and family. You can claim up to 25,000 for premium paid for self, spouse and kids. In case of senior citizens the limit is 50k.

If you have a home loan, you can also claim tax deduction on the interest paid towards home loan. You can claim deduction for up to 2 lakhs for the interest paid.

Further you can claim the contributions made to certain relief funds and charitable institutions under section 80G.

Ans: Hi,

Given your annual CTC of Rs 17.6 lakh and your current investments, here are some tax-saving investment options you can consider for the financial year 2023-24:

1. Equity Linked Savings Scheme (ELSS): This is a type of mutual fund that not only helps you save tax but also gives you an opportunity to grow your money. They have a lock-in period of 3 years.

2. Public Provident Fund (PPF): You've mentioned planning for Sukanya Samriddhi for your daughter, which is a great choice. In addition to that, you can also consider investing in PPF. It's a long-term investment option that offers tax-free interest.

3. Unit Linked Insurance Plan (ULIP): Since you already have life insurance policies, you might want to look into ULIPs. They offer both insurance and investment under a single integrated plan.

4. National Savings Certificate: This is another safe investment option that you can consider.

5. New Pension Scheme (NPS): It's a voluntary, long-term retirement savings scheme designed to enable systematic savings. It is a mix of equity, fixed deposits, corporate bonds, liquid funds, and government funds.

6. Fixed Deposits: Some fixed deposits offer tax-saving benefits. However, the interest earned might be taxable.

7. Senior Citizen Saving Scheme (SCSS): Since you've mentioned senior citizen health insurance, if you or your family members qualify, SCSS can be a good option. It offers a good interest rate.

Remember, the key is to diversify your investments and not put all your money into one basket. It's also essential to keep in mind the lock-in periods, returns, and tax implications of each investment option.

I hope this helps!

Ans: Interest paid on Home Loan is also exempt under the new tax regime. You may plan for that.
I feel in your case old regime may not be beneficial even after all tax savings under 80-C, 80-D & 80CCD(1b).
Most welcome for any further clarifications. Thanks.

Ans: You have a steady income of Rs 41,000 per month, with 10% going into NPS, and your monthly spending is only Rs 8,000. You also own your home, which reduces your expenses. This means you have a good surplus to invest.

Let’s assess how you can best use this surplus to build long-term wealth while keeping your financial goals and risk tolerance in mind.

Importance of Diversified Investments
With your low monthly expenses, you have a significant amount available for investment. This is a great opportunity to diversify into multiple asset classes for both growth and stability.

Instead of relying solely on fixed deposits or traditional savings, a well-diversified portfolio can give you higher returns while balancing risk.

Diversifying your investments into a mix of equity and debt ensures you grow your wealth and protect it from market volatility.

Increasing Your NPS Contribution
As you are already contributing 10% to the NPS, increasing this contribution is a great way to build your retirement corpus. The NPS offers tax benefits and can provide good returns due to its exposure to equity and debt.

Increasing your voluntary contribution can boost your retirement savings while giving you additional tax deductions.

Over time, the compounding effect in NPS can significantly add to your retirement security.

Investing in Mutual Funds for Long-Term Growth
Since you don’t have a high immediate need for liquidity, you should consider investing a significant portion in mutual funds. Mutual funds offer flexibility and higher returns than traditional savings methods.

Actively managed mutual funds have the potential to outperform index funds because fund managers make active decisions based on market conditions. This helps you get the most out of your investment, especially over the long term.

It is better to work with a Certified Financial Planner (CFP) and invest through an MFD. They can help you select the right actively managed mutual funds based on your financial goals and risk appetite.

Avoid Direct Funds
Direct mutual funds may seem attractive because of lower fees, but without proper guidance, you might pick funds that don’t perform well or don’t suit your goals.

Regular mutual funds, on the other hand, come with expert advice through an MFD. This advice can be invaluable in optimizing your portfolio, even if the expense ratio is slightly higher.

Building an Emergency Fund
Since your monthly expenses are Rs 8,000, it’s wise to keep 6 to 12 months' worth of expenses in an emergency fund. This fund can be kept in a liquid investment, such as a savings account or a liquid mutual fund, to ensure you have quick access to cash if needed.

Having an emergency fund is crucial so that you don’t need to dip into your long-term investments during unforeseen situations.

Equity and Debt Allocation for Balanced Growth
You can allocate a higher percentage to equities since you don’t have any major liabilities and your monthly spending is low. Equity mutual funds will help grow your wealth in the long term.

However, some exposure to debt is also important to stabilize your portfolio and provide predictable returns. You can invest in debt mutual funds or continue with your NPS, which already has a debt component.

A 70% equity and 30% debt allocation is a good starting point, given your risk tolerance and financial stability.

Maximize Tax Benefits
You are already getting tax benefits from NPS contributions. Additionally, investing in tax-saving instruments like Equity-Linked Savings Schemes (ELSS) can help reduce your tax liability while offering equity exposure.

ELSS funds have a lock-in period of 3 years, but they offer higher returns compared to traditional tax-saving instruments like PPF and NSC.

It is important to balance tax-saving goals with long-term growth when selecting investments.

Consider Increasing Your SIP Contributions
If you are not already doing so, you should consider starting a Systematic Investment Plan (SIP). Since you have a low monthly expenditure, you can easily allocate Rs 10,000 to Rs 15,000 towards SIPs in mutual funds.

As your income increases, you can progressively increase your SIP contributions. SIPs allow you to invest in a disciplined manner, reducing the impact of market volatility.

Health Insurance for Financial Protection
Ensure you have adequate health insurance coverage. Medical expenses can eat into your savings quickly if not planned for. As a government employee, you may already have some coverage, but it is always safer to have an additional personal health insurance policy.

This will protect your savings in case of any medical emergencies and ensure that you don’t have to compromise your financial goals.

Periodic Portfolio Review
It’s important to review your portfolio at least once a year. As markets and your financial situation change, your investment strategy may need adjustments.

A Certified Financial Planner can help you rebalance your portfolio based on market conditions and personal financial goals.

Final Insights
You are in a strong financial position, with minimal expenses and a steady income. By increasing your NPS contributions and investing in mutual funds, you can effectively grow your wealth.

Focus on a balanced portfolio of equity and debt to manage risk while maximizing returns. SIPs in actively managed mutual funds will allow you to achieve long-term growth.

Make sure to build an emergency fund and secure adequate health insurance. Regularly reviewing your investments will help you stay on track to meet your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment