Five Tax-saving Investments for Millennials in 2021

Would you like to plan your finances in a way to save taxes? Let us look at investments that are tax-free for millennials.

Introduction

Most millennials desire to save money and invest responsibly. The generation bringing about significant changes in all aspects of life is sometimes caught between traditional financial values and contemporary lifestyle. Do you want to make the most of your money?

Here are five tax-saving investments for millennials:

Public Provident Fund

Public Provident Fund, popularly known as PPF, is a long-term saving scheme offered by the government. If you follow conventional investing strategies, PPF is suitable for steady returns plus tax benefits.

In a financial year, investors can deposit a minimum of ₹500 and a maximum of ₹1,50,000. And the interest earned is compounded annually. PPF has a low-risk appetite that protects your investments from being taxed. A PPF account is qualified for a tax deduction under section 80C of the Income Tax Act. The interest earned on the PPF and the maturity amount are tax-free.

Millennials planning to invest in PPF will beat inflation and save taxes in the long run. It is one of the best investments to stick with and reach a personal financial goal, such as purchasing a dream home or retirement income planning.

Additional Read: What are the benefits of filing an income tax return on time

Equity-Linked Savings Scheme

Equity-Linked Savings Scheme or ELSS is a tax-saving mutual fund that benefits from equity returns while saving taxes. An ELSS is the only kind of tax benefit in mutual funds under the Income Tax Act.

With investment in the ELSS, you can earn a tax exemption of up to ₹1,50,000 annually under Section 80C. It comes with a lock-in period of three years.

Through a systematic investment plan (SIP), ELSS can be very beneficial towards building wealth for millennials over time. Also, the power of compounding and reinvesting earnings wins primary financial goals.

Tax-saving fixed deposit

Tax-saving fixed deposits is a financial instrument that allows you to make an investment and save tax under section 80C of the Income Tax Act. It has a minimum lock-in period of five years, a shorter time when compared to the PPF, and gets a tax exemption of up to ₹1,50,000 annually. You can choose to deposit a sum of money towards a tax-saving fixed deposit in a public or private bank sector.

While fixed deposit for tax saving offers a low rate of return, you can earn guaranteed returns along with tax benefits. However, interest received from the tax-saving fixed deposit is taxable under your income tax bracket.

Without any financial risk element, tax-saving fixed deposits are one of the most traditional investment plans that do the trick of saving for income tax.

National Pension System

National Pension System (NPS) is a government-sponsored scheme that allows you to distribute your money as you like. It has a diverse mix of asset classes such as equity, fixed deposits, government bonds, corporate bonds, and liquid funds. Regular contributions towards the NPS account will help you build a corpus for retirement.

NPS allows you to open an account as Tier 1 and Tier 2. Tier 1 account is mandatory in opening an NPS account, and you cannot withdraw money deposited until your retirement. The Tier 2 account is voluntary, allowing you to withdraw the money deposited at any time.

A tax deduction of up to ₹1,50,000 can be claimed under Section 80C. And an additional tax deduction of ₹50,000 can be claimed under Section 80CCD(1B) on the NPS Tier 1 account.

NPS is an investment option for anyone who wants to save taxes and grow wealth. Especially for millennials who are looking for an opportunity to invest in equity and gain tax benefits.

Additional Read: All about Income Tax in India: Basics, tax slabs and e-filing process

National Savings Certificate

National Savings Certificate or NSC is a fixed income investment scheme that you can easily open in any post office. It requires a minimum investment of ₹100. It is considered an ideal investment for millennials as it has no upper limit. However, it has a lock-in period of five years. The current National Savings Certificate interest rate is 6.8%.

NSC is a safe investment choice which helps you save taxes and grow wealth. It comes with the benefit of tax deduction of up to ₹1,50,000 annually under Section 80C of the Income Tax Act. The interest earned on your NSC investment gets accumulated in the account. You can also avail a tax deduction on the interest that you reinvest or add back to the initial investment in the first four years. However, the interest earned in the fifth year is taxable as per your tax slab.

Conclusion

A penny saved is a penny earned. The art of saving is best learnt by cultivating a habit of it. Approaching investing with the right mindset can earn significant savings and help achieve your financial goals. Kick-start on your tax-saving investment plan now and enjoy your ride towards financial freedom.

Additional Read: How to save taxes for salaried individuals