Tax Slabs and Tax Saving Investment

Most investors and taxpayers wait until the end of the financial year before they start rushing to make investments. However, while scurrying through the investment choices, you might end up selecting something that is not the best choice for you.So, how should you select a tax-efficient investment option? It begins with first clearly knowing your tax slab and then understanding investment choices that best match your requirements. Take a look-

The Union Budget 2020 introduced a new but optional income tax regime. Taxpayers opting for this new regime will have to forego as many as 70 tax exemptions. But the government has compensated this by reducing the tax rate in the new regime. Here are both the new and old tax slabs-

Thus, while the new one comes with reduced tax rates, it does not allow you to take exemptions.

Once you know your tax slab, the next step is to focus on investment options that are not only eligible for tax savings but also match your lifestyle, investment objective, age, and risk appetite.
Here are some investment and tax-saving recommendations based on the age group you fall in.

1. 20-30 Years

When you are 20-30 years old, you should try to purchase health insurance and life insurance as early in life as possible, as you can take advantage of the low premium offered to you. Not to forget that these insurance products are also eligible for tax deductions. With regards to investment, you can consider ULIPs or ELSS that can generate higher tax-efficient returns.

2. 30-40 Years

Now that you are settled and probably have more responsibilities, this could be an excellent time to increase the coverage of your life insurance policy and purchase a family floater health plan. And for investments, you can consider options like ELSS mutual funds , PPF, NPS, and bank FDs.

3. 40-60 Years

In these years, retirement goals usually take precedence. You can focus on goals such as repaying a home loan, children's education and marriage, etc. You should also consider increasing the coverage of your health plan and make voluntary PF and EPF contributions for your post-retirement life. You can also consider guaranteed savings plans or retirement plans for added tax savings.

4. Above 60 Years

In this age category, the primary investment goal should be to consolidate by moving towards more risk-averse investments.  Moreover, you get additional tax benefits once you are above 60 years. For instance, senior citizens enjoy Nil tax slab for income up to Rs 3 lakh, and the same for super senior citizens (above 80) is Rs 5 lakhs. Apart from this, they also enjoy lower tax rates on earnings from investments. This makes bank FDs, Senior Citizen Savings Scheme, and annuity plans a great choice for saving taxes for individuals above 60 years. Even insurance premiums should be effectively used to take advantage of the available tax deductions.

Selecting investment options that don’t just offer tax savings but also help you as you move ahead in life can be challenging. The best option is to rely on a professional investment advisor as their recommendation would be based on your age, personal goals, risk appetite, and lifestyle.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.