The present situation of the pandemic all over the world had, in many ways, affected the current economic situation. Short term investment plans considered to be liquid investments as savings could be kept for short durations and avail returns. Short term investments, you can avail of a lump sum return over some time with tax benefits. The tax saving matters are on the way now as both the salaried and non-salaried taxpayers will have to think for the tax-saving investment options for the upcoming financial year 2020-21.

The tax saving matter is a very complicated picture to calculate for a person as it considers many aspects. As an investor and also a taxpayer, a person should consider for investment options that not only helps to save tax but also to generate tax-free income. There are many ways of tax-free income in India, such as Agricultural income, tax-exempt bonds, and certificates. Term insurance is an addition to it with many more. The person should know about how the return will be taxed before making the investment.

Way out to short term plans for tax benefits:

Many plans are considered beneficial for a large amount of taxpayers, and rather it is a great help to save tax for a substantial income group.

  • Debt-Based Mutual Funds
  • Unit Linked Investment Plan (ULIP)
  • Equity Linked Saving Scheme (ELSS)
  • Rajiv Gandhi Equity Savings Scheme (RGESS)
    • Term Insurance
    • National Saving Certificate (NSC)
    • Senior Citizen Saving Scheme (SCSS)
    • Tax Saver Fixed Deposits
    • Fixed Maturity Plans

Every plan is almost familiar to the people, but still, a short briefing is given below.

Hasty decision creates long term impact:

People take the hasty decision of buying a life insurance policy to avail the tax benefit that premium payments can return them without considering their needs for proper investment. Making a financial mistake can definitely come back to you when a person is not prepared to expect it. The premiums for the term insurance plan qualify for a tax benefit under section 80C of the Income-tax Act. The Term Insurance plan works as a family income if the major earner of the family dies.

Else to be a tax benefits players:

Full form of ELSS is Equity Linked Savings Scheme. This is a tax-saving mutual fund that can be used to save income tax up to Rs 1.5 lakh under Section 80C. 3 years lock-in period is there in case of ELSS funds, which could give the highest possible return. The scheme is exempted from tax up to 1,50,000/-. There are many midcap & small-cap index funds available in India, which help gain a tax benefit

National saving certificate to give large scale tax exemption:

The national saving certificate is a much of primitive one in respect to investment for saving tax. The tax benefit could be taken every year if the same amount is invested. Interest on NSC is paid on maturity and taxable as per the individual's income tax slab. The interest earned on the certificates is also added back to the initial investment. The tax is deductible under 80C. Senior Citizens Savings Scheme (SCSS) and Pradhan Mantri Vaya Vandana Yojana (PMVVY) gives higher rates of interest than the fixed deposit rates.

Fixed maturity plan to set the goal:

The returns earned from FMPs longer than three years are treated as long-term capital gains. Investment in FMP could be done only during the new fund offer. On the other hand, the interest earned on fixed deposits is added to the income and taxed at normal rates, It is a special class close-ended debt.

Fixed Maturity Plans are becoming the latest alternative investment options to conventional fixed deposits as per their return, and tax benefit is considered. The fund manager of FMP follows the way of buy and hold strategy. Buying and selling of debt securities are not so frequent like others. Both require you to stay invested for a fixed duration. Both FD and FMP gives return as per the customer requirement.

Many plans are rolling in the market for tax benefit facilities. A person may choose the option for dividend or growth in them. Also, someone may look for a regular income, although not assured to a particular sum. Public Provident Fund (PPF) Scheme has been a well-recognized savings venture for several investors and is still standing on the top.

As the principal and the interest earned have a security guarantee and the returns are tax-free. While the minimum amount required annually to keep the account active is Rs 500, Rs. 1.5 lakh is what you can deposit in the account at maximum. This is the combined limit, which is set for self and minor account. PPF is the best suitable one for those who do not want any problem in returns and aim for a secure return.

A term insurance plan is important because even financial consultants suggest taking a life cover even before investing in long-term goals. If the bread earner of the demise could give a backup for lifelong to the family, considering it should be of the right amount.

There is a misconception that insurance is beneficial only for married people. In fact, life insurance or term insurance is a necessity for anyone who has financial dependents. The misconception of insurance should be cleared as a person could also have old parents as a dependant, which also needs to get security.

Having a cover for life long may not be enough for a person. An accident can turn a policyholder disabled, thus impacting his or her earning capacity. Failure to make timely premium payments towards the policy may result in failure to achieve the policy's benefits. The next important factor is to fix the tenure.

The tenure offers terms up to 35 or even 40 years. Longer tenure means higher premiums and benefits. Insuring an amount for a more extended period may not be required for a person because, in maximum cases, liabilities are considered to be completed within the retirement. The people need to get happiness and benefit from the money earned in their lifetime after that.

Considering buying a protection plan, before that, make sure you have the benefits linked with a critical illness or a disease-specific idea such as a cancer cover. Taking the decision to buy life insurance only to save tax could be a financially damaging decision. Instead, a person should consider putting the savings in the Public Provident Fund, which could give a better return with tax-free income.

Sukanya Samriddhi Yojana (SSY) is a deposit scheme for the girl child. It is a part of the 'Beti Bachao Beti Padhao' campaign by the Government of India. The initiative is really appreciable to save the girl child in the nation. This small deposit scheme is giving a good return indeed with an 8.4% rate of interest. It requires a small amount of 250/- for the scheme and will also provide the taxpayers' tax benefit. The entire amount will get mature when a girl turns to 18 years. The maturity amount is also non-taxable. It is quite an essential initiative in the financial ground by the government.

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