Tax Saving Investments to Consider Before Turning 30

It is crucial to start planning your financial future at an early age. Investing during the prime years of your life can give your money the maximum time to grow, helping you accumulate a tidy sum for retirement and other needs. In fact, investors who start saving for retirement in their 20s are well-positioned to enjoy much higher gains than those who begin at some point in their 30s, according to a study by Gallup.

Today, starting your investment journey has been eased with the availability of various tax saving financial instruments, such as mutual funds. Take a look at some of the best tax saving instruments to make the most of your investment.

1.     Systematic Investment Plan (SIP)

This is a reliable instrument that can offer high returns on your investment. You can claim a deduction of up to ₹1.5 lakhs on your taxable income under Section 80(C) of the Income Tax Act, 1961, when you invest in ELSS through the SIP route. It is advisable to start in the beginning of April, rather than waiting for the financial year to end. This will help in early tax planning and allow you to manage your money balance in a better way.

2.     Debt Funds

Short term gains are taxable as per the existing tax slab rate. Long-term gains are taxable at 20%, with indexation benefits. You can also add STCG (short term capital gain) from debt funds to your income. This is much more tax efficient than fixed deposits. So, consider including debt funds in your investment portfolio. They also tend to be lower risk than many other types of investments.

3.     Liquid Funds

You can earn both returns and dividends from liquid funds. No tax is required to be paid on dividend income. However, the amount is taxable in case the gains are earned by redeeming the fund units at a higher price than the purchase price. Therefore, make sure to learn about liquid funds before you invest, since they come with terms and conditions and are not entirely tax free.

4.     Equity Linked Savings Scheme

ELSS is one of the greatest products to qualify for tax savings under Section 80 (C) of the Income Tax Act. Equity-linked funds usually come with a lock-in period of 3 years, which is the lowest of all tax-saving solutions. Further, you can claim tax deduction of up to ₹1.5 lakhs on your taxable income in a financial year. Therefore, look at the bigger picture before investing, for an informed decision.

As a smart investor, look for products that not only give you good returns but also help with tax-free income, which will then double your benefits and ensure maximum savings. However, for instruments that are not completely free of tax, do start planning early to receive better returns in the long run. Also, many of the above funds allow you to invest via the SIP route. This can be a great way to start off and slowly build your investments.

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