What is the Best Investment Option to Lower Your Income Tax?


We are all concerned about how to structure our investments to build a corpus for our future. Tax-saving tactics are just as important as tax preparation. You can save money while simultaneously making money by taking advantage of the top tax-saving programmes in India. The beginning of the fiscal year is the optimum time to plan for tax-advantaged investments. This ensures that you do not pay additional taxes and save taxes in India, as well as that you enjoy year-long returns on tax-saving investments.

We all want to pay as little tax as possible on our hard earned money legally, but only a few people succeed. The answer could be a lack of knowledge or difficulties adopting the best-suited product into your investment strategy. In this article, we have identified India’s top tax-saving investment solution to assist you in evaluating and making an informed investment decision.

When thinking about tax savings in India, keep in mind that your goal should be more than just tax savings. The goal should be to invest in the best investment option while simultaneously saving money on taxes. So let’s look at the best tax-saving investment opportunities in India.

Tax Saving options for anyone in India

If you are single in your late twenties or early thirties, or married but only one of you works, the following are your best tax-saving options:

  • Purchase Term Insurance with a Sum Assured of 15 to 20 times your yearly earnings.
  • Public Provident Fund (PPF) 

Set aside a minimum of 20% of your yearly earnings for Market-Linked Investment Options that provide EEE advantages. Such as: 

  • Unit Linked Insurance Plans (ULIPs) 
  • Equity Linked Savings Schemes (ELSS)

Then, begin contributing at least 10% of your yearly earnings in a pension fund, such as:

  • National Pension Scheme
  • Pension Funds 

To save around Rs.1 lakh under Section 80D. Consider buying;

  • Mediclaim health insurance cover for self
  • Mediclaim health insurance cover parents
  • Cover yourself against critical illnesses 
  • Get cancer cover

ULIP: The Best Tax-saving Investment Option 

Money management is surely the first step in budgeting, but for sensible planning, you must design a strategy that allows you to minimise taxes. Life insurance plans, unit-linked insurance plans (ULIPs), PFs and PPFs, ELSS investments, and other tax-saving solutions are now accessible.

In the middle of all of this chaos, ULIP Plans has emerged as a reliable long-term option for wealth building. The primary reason for this increase is the benefits that this plan offers to its clients. Profitability, financial security, and tax savings are all advantages for users. ULIPs offer a variety of benefits to investors, including:

  • Life coverage to the investor, just like any life insurance.
  • Investment option in the mix of equities and debt funds to keep you risk low as well as maximizing returns.
  • Inter-fund transfers ability through switches.
  • Tax rebate opportunities.

Apart from all other market-linked financial plans, ULIP is one of the most spectacular investing solutions. The basic reason for this is that a ULIP offers both investment and insurance benefits, as well as tax breaks under Sections 80C and 10(10D) of the Income Tax Act.

We feel confused while choosing the best investment option because we have a variety of them available to us. But we should look  for a solution that offers benefits such as tax savings, wealth protection, strategic flexibility, and value appreciation. Typical insurance policies provide life insurance as well as tax benefits. On the other hand, mutual funds offer high returns while offering no life insurance and relatively limited opportunities for tax savings. In the long run, traditional tax-saving tactics (such as PFs) are incapable of creating inflation-proof earnings. However, a ULIP is an excellent financial tool that acts as a good investment choice while also giving additional benefits.

ULIP Provides Strategic Financial Planning 

For a minimum of five years, the policyholder is not entitled to make any withdrawals. This is known as the lock-in period in ULIP. Even if fractional withdrawals are permitted, they must not exceed 20% of the fund value, as guaranteed when the insurance was purchased. Otherwise, if made after the lock-in period has ended, these withdrawals are completely tax-free. This feature allows policyholders to use their ULIP as an investment vehicle to attain their financial goals.

If you want to save money for a future house purchase, your children’s schooling, or your wedding, you should enrol in a ULIP as soon as possible. It will not only help you build your wealth, but it will also protect your family members from the financial risks of life.

Why should you invest in ULIPs?

The main reasons why you should invest in ULIPs are:

Life insurance: ULIPs, above all, provide life insurance as well as investment options. It protects a taxpayer’s family in the event of an emergency, such as the taxpayer’s untimely death.

Income tax benefits: Many people are unaware that the premium paid for a ULIP qualifies for a Section 80C tax credit. Furthermore, the maturity returns on the policy are exempt from income tax under Section 10(10D) of the Income-tax Act. This policy offers you a two-for-one benefit that you can use.

Helps you build corpus: ULIPs not only gives you tax benefits or life insurance coverage, but also helps your money to grow over time. As it’s a market linked unit, your money will grow with the market growth. Therefore, it proves to be a handy investment option as well. 

Helps you achieve Long-Term Aspirations: If you have long-term goals, such as buying a house, a new car, or marrying, a ULIP is a wise investment decision because the money is multiplied. As a result, net returns are frequently larger. This is true, especially if you opt to leave after the 5-year lock-in period rather than depositing the money in a bank account or an FD. In the case of ULIPs, however, the mantra is to always keep the policy active for a longer period of time in order to get the most out of it.

Portfolio switching flexibility: As previously said, ULIPS are frequently constructed to assist you in adjusting your debt and equity portfolios according on your risk tolerance and awareness of how the economy is acting. Insurance companies, on the other hand, only allow a limited number of free swaps.

Things to consider as an investor

Following are the main aspects you should consider before investing in ULIPs:

Your financial objectives: If you want to build wealth and save money for the future, a ULIP is one of the best options available.

Consider the following ULIP alternatives: After you’ve determined your investing objectives and the type of ULIP that will help you achieve them, the following step is to analyse the industry’s ULIP offerings. Look for comparisons of background costs, ULIP performance, premium payments, and so on. Investigate the types of funds in which the ULIP invests to assess the ULIP’s return on investment.

Possibility of risk: Because ULIP investments are not as varied as ELSS investments, the risk in ULIP is expected to be higher than in ELSS plans.

Prospects for investment: The lock-in period for ULIPs is five years. If a ULIP is surrendered during the first three years, the insurance coverage is automatically cancelled.

Final Words

ULIPs should be used by anybody who wants to make a lot of money, get a lot of tax savings, and get a lot of life insurance. People typically invest in mutual funds in addition to purchasing life insurance. Balancing many investments, on the other hand, could be a difficult task. As a result, you should opt for a product that offers a variety of benefits.

In this aspect, a ULIP is a terrific tool for delivering numerous benefits such as insurance, investments, savings, and tax savings. They provide you with substantial profits, adequate financial life insurance, and tax breaks. Above all, the risk of ULIP ranges from moderate to low. As a result, ULIPs are the ideal tax-advantaged investment vehicle.

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