Ironically, the most important investment is decided in a hurry, at the last moment. Most of the taxpayers decide on it somewhere between January to March of every year. Tax saving usually involves a long-term commitment, so a mistake can put senior citizen taxpayers into serious financial problems. So, let us look at three points that you must consider while investing to save taxes.
Plan Well In Advance
You must plan well in advance and not at the last moment. Early planning can help in selecting appropriate tax-saving instruments in sync with the financial goals of taxpayers. By planning ahead, you have the opportunity to identify and take advantage of all the deductions and credits available to you. By planning well in advance, you have sufficient time to research and implement the most suitable tax-saving options for your situation.
Select The Options Based On Your Risk Appetite
There are many tax-saving options available in the market. You can invest in Public Provident Fund (PPF), Small Savings Schemes, Equity Linked Saving Scheme (ELSS), insurance schemes, etc.
All of them have different risks and rewards to offer. Investing in ELSS is riskier as they are market-linked products.
Provident funds, annuity options, and small savings schemes are low-risk tax-saving investments. The returns too are low but the purpose of investing in such assets is to protect capital and save taxes.
Utilise The Limit Fully
Many investors falling in the highest tax bracket, do not use the tax saving benefit fully. Any amount invested in tax-saving instruments gives you immediate returns in terms of saved taxes. The returns depend on the tax bracket you fall under. By understanding your tax obligations and potential savings, you can allocate your resources accordingly.
Moreover, it further gives you returns on its own. Let us look at it this way. If you fall under the 20 per cent tax bracket and you invest Rs. 1 lakh in tax savings, you end up saving Rs. 20,000. This can be taken as an instant return of 20 per cent. Further, the Rs. 1 lakh investment will work for your returns as per its structure.
Finally, it is always better to plan well, otherwise, senior citizen investors may make mistakes in selecting the wrong instrument for tax-saving purposes. By implementing tax-saving strategies, senior citizens can optimize their finances, preserve their income, and leave a lasting legacy for their loved ones. It’s important for senior citizens to consult with tax professionals or financial advisors who can provide personalized advice based on their specific needs.
The author is an Independent Financial Journalist