Tax Planning Tips for Each Age Group

Tax Planning Tips for Each Age Group

17 Jan 2019
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As people age, their priorities change - this is especially caused by the increasing number of responsibilities brought on by age. With changing priorities, the investment patterns of people also change as investors opt for different instruments based on how old they are and what financial goals they are trying to achieve with their investment.

For instance, millennials (those born between 1981 and 1996) are more likely to invest a significant portion of their income in tax-saving schemes to lower their taxable income. Non-millennials (born before 1981) are more likely than millennials to invest in equity funds. Here’s a break-up of instruments millennials and non-millennials invest in to grow and protect their wealth.

Tax Planning Tips for Each Age Group

Source: Live Mint

Investors also choose investment options based on their personal risk profile. For instance, many people regardless of age invest more in fixed deposits owing to the guaranteed returns it offers (which makes it one of the best investment plans for risk-averse investors). Invest in a fixed deposit on Finserv MARKETS today, and you can earn returns at a high interest rate of 8.35%.

Different age groups of people have different ambitions and responsibilities as well. That is why it is necessary to plan investments according to the age group you fall under. Read on to learn tax planning tips for different age groups, and which correspond most closely with your goals.

  1. Between Ages 20-30 years:

    People in their 20s are most excited about their first salary and all the things they can buy with it. However, it is important to realise that it is necessary to begin planning for tax payments early in life in order to ensure minimal liability. In your 20s, it is possible to opt for high-risk investment instruments such as equity fund instruments which offer a high amount of tax deductions under Section 80C of the Income Tax Act. Not only will you ensure a high amount of tax savings, but these instruments can also beat inflation and generate high returns. It is extremely important to start tax planning in your 20s itself to ensure a comfortable life afterwards. Seek counsel from a tax advisor or a senior colleague who can guide you towards better investments which ensure tax savings.

  2. Between Ages 30-40 years:

    Between these years, individuals are not just earning more but also spending more. That is why tax planning has to be taken more seriously at this age. You should start planning for long-term life goals, while taking into account their tax-saving benefits. You should avail tax deductions on as many expenses as possible. For instance, make sure to thoroughly research the tax saving options on different loans or plans you buy. The principal repayment on a home loan can be claimed under Section 80C while the interest repayment can be claimed under Section 24B. Insurance is also an important tax-saving tool, and even more helpful owing to the long-term benefits it offers policyholders and their dependents. A good option would be ULIPs, which offer the protective cover of insurance and the high returns of an investment instrument. ULIPs are an EEE (Exempt-Exempt-Exempt) scheme. This means that everything from your premium payments to withdrawals and the final maturity benefit is tax-free.

  3. Between Ages 40-50 years:

    At this stage, most individuals do not wish to invest in instruments that are riskier. Thus, if you want to save taxes while investing on instruments that generate returns, invest in debt funds. Apart from that, your 40s and 50s are a good age to get started on planning for old age by investing in retirement and pension funds. For instance, you can get income tax deductions by placing some money in the National Pension Scheme (NPS), under Section 80CCD.. You can save upto Rs. 1.5 lakhs with an additonal deduction of Rs. 20,000, under Section 80CCD.

  4. 50 Years and Above:

    At this age, retirement is right around the corner and it is important to think seriously about how you want to ensure an income post retirement. It is best to avoid investment-based tax savings instruments and instead opt for tools which offer a steady stream of returns. As you transition into retired life, you may find Fixed Income Instruments (FII) like fixed deposits and the Senior Citizen’s Savings Scheme ideal investment options which provide handsome returns as well as significant tax benefits. Investments made in the SCSS as well as fixed deposits are eligible for tax deductions under Section 80C of the ITA. Make sure to take the more aggressive decisions early on in life to ensure a comfortable retired life, where you don’t have to struggle to make ends meet.

At every stage of life, financial goals change along with the responsibilities the person has. As a result, it is necessary to plan investments in a manner such that the goals are accomplished successfully. Making an informed decision to guide your investments is key. Research extensively, use an income tax calculator, compare investment options and once you’re absolutely sure said investment aligns with your goals, you can opt for the same.

On Finserv MARKETS, you can opt for fixed deposits which not only offer high interest rates of 8.35% and a secure income post-retirement with an additional interest of 0.25%, but also serve the tax-saving purpose. Fixed Deposits on Finserv MARKETS come with a high CRISIL FAAA rating and a stable ICRA MAAA rating. You can opt for fixed deposits on Finserv MARKETS to help grow your wealth.

 

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