The idea of wealth accumulation has grown from a passive process to an active necessity today. In times where high costs of living, lifestyle choices, unforeseen expenses and high-inflation rates persist in the market, one has to make informed decisions about making their financial corpus grow exponentially to support themselves, and those dependant on them. Investors today seek tax saving options that enable a disciplined flow of funds into a regulated space, and generates assured returns depending on the type of plan. The most sought-after outcome is a low-risk, tax saving and high return plan, where the funds can be invested with an assured high return margin. 

Under the Income Tax Act, 1961 many investment and insurance policies are exempted from taxation as income tax deductions for salaried professionals as they are determined as essential costs and funds which are integral to an individual’s financial stability[1] and future. This has caused many insurance providers to incentivise investment policies and developed them into essential tax saving options of investment that benefit the investor, the insured and the economy. 

Investing in tax saving investments from a young age builds financial literacy about one’s financial liabilities and income sources at the time of filing returns. It compels investors to actively seek tax saving options of growing funds that can help one avail sizeable deductions or tax exemptions on their gross income which helps them build their personal fund while also fulfilling their duties as a taxpayer. 

Young professionals value liquidity, high-returns and moderate risk according to their income. Therefore, their tax saving options are mostly restricted to allowance benefits which can be turned into tax deductions at the time of filing returns. Let us take a look at some tax saving options a young investor or earning professional can avail in India:

1. House Rent Allowance: HRA exemption under the Income Tax Act is one of the more functional tax saving options that can be availed by a young professional. The process of availing requires them to present rent receipts or the rent agreement, along with the landlord’s quoted PAN in the event their annual rent surpasses Rs. 1,00,000 to avail the exemption in full. 

2. Education Loan: In the event that a person had taken an education loan to fund their higher studies, the education loan exemption comes in as a useful tax saving option on the interests paid towards the aforementioned loan. Under section 80E of the income Tax Act, 1961 the taxpayer can deduct the whole interest amount paid towards the loan from their net taxable income at the time of filing income tax returns. However, one must note that this deduction is only allowed for a period of 8 years. 

3. Insurance: Investing in an insurance policy is one of the most important investment decisions an individual has to take in order to secure their future needs and financial obligation with the benefit of it being a tax saving option of investment plan as well.  Since it a universal requirement for people, premiums paid towards aforementioned insurance policies are eligible for tax exemption. The payouts thus received from the same are also exempted from one’s taxable income at the time of filing. These qualify as eligible for deductions under section 80C.  For health insurance, one can claim a deduction of up to Rs 25,000 from their taxable income on the premiums paid towards maintaining the policy. If the policy is for someone above the age of 60, this limit is extended to Rs 50,000, and for super senior citizens above the age of 75; the tax benefit is up to Rs 75,000. 

4. Tax Saving options under 80C: The best tax saving options of investment are ones that synthesize present coverage with exponential capital growth in the future. As the name suggests, the benefits of a tax saving options under section 80C of the Income Tax Act, 1961 is the assurance of significant paybacks from the plan after a determined time-period that are free from tax liabilities. The most common type of tax saving options today are mutual funds, ULIPs, government interest schemes, fixed deposits, pension schemes and certain asset investments. 

What is ULIP: Unit Linked Insurance Plans are tax saving options of investment-cum-insurance instruments that is driven towards fulfilling a dual purpose for the policyholder. ULIP plans are maintained by premiums paid by investors, the frequency of these payments can be monthly or annual. One of the beneficial features of a ULIP plan is that it uses the paid premium and payouts

5. Tax Saving options other than 80C:   Section 24- Interest deduction valid for a home loan of up to Rs 2,00,000

Section 80TTA- deduction up to Rs 10,000 for interest received in saving bank account.  Section 80D- for medical insurance premium for self, partner and other dependants. 

Section 80EE – Deduction for payments towards home loan for new homeowners 80G- Donations made towards Charity 80GG- In case salary does not include HRA component, one can claim rent deduction under 80GG Before choosing a tax saving investments, one should consider the visibility of their funds and when they might need it in the foreseeable future.

Max Life Insurance and its adept financial advisors can guide investors towards their ideal tax saving investments; from young investors with shorter investment horizons, or prospective retirees and investors with longer investment horizons can schedule a consultation today and start their investment journey.