Investing in assets that are tax deductible is a great way to minimize your taxable income. These can include investments such as ELSS mutual funds, NABARD rural bonds and Infrastructure bonds.
ELSS mutual funds
ELSS is a type of mutual fund that is eligible for tax deductions under Section 80C of the Income Tax Act.
However, to enjoy the benefits of an ELSS fund, you need to be well-versed with its risk factors. The investment horizon should be long enough for the fund to provide you with adequate returns. Investing in an ELSS fund will also require you to pay attention to its concentration risk and volatility risk.
ELSS funds are available in a systematic investment plan (SIP) mode. In this method, a fixed amount is deducted from your saving account each month towards the investment. It is an efficient way to invest, as it allows you to take small amounts at regular intervals. It also provides you with the benefits of rupee cost averaging.
The SIP method allows you to purchase fund units at a predetermined frequency, usually every quarter or every month. This enables you to get the maximum return out of your investment. You can purchase the units through a third-party website such as Paytm Money App.
To start an SIP, you will need to open an investment account with a fund house. You will then need to verify your eligibility. This is done by submitting a photo in the prescribed format and your PAN number. It is also important to verify your address.
Once you have verified your eligibility, you can begin investing in an ELSS fund. You can then invest in the fund as a lump sum or as a SIP.
The investment horizon for an ELSS fund should be at least five years. This will ensure that you receive the best returns possible from equities. A shorter investment horizon will ensure that you miss out on the potential for a higher return. You can redeem your units after three years, if you choose to.
ELSS investments can be used to achieve a variety of goals, such as buying a car, building a retirement kitty or saving for a child’s education. The tax benefits of an ELSS fund make it a worthy investment for anyone who is looking for a safe, high-yielding investment option.
Investing in infrastructure bonds is a great way to reduce your tax liabilities. You can earn a decent interest rate while benefiting from the tax deductions available under Section 80CCF.
You can save as much as Rs 6,180 per year by investing in infrastructure bonds. This benefit is only applicable to investments up to a maximum of 20,000 rupees. It is not available to foreigners.
Infrastructure bonds are primarily issued by state and local governments and the federal government. The money raised is used to finance construction of local infrastructure. These bonds are typically illiquid for the first few years. However, the demand for them increases by the end of the year.
The federal government subsidizes all infrastructure bonds. This is a win-win situation for both the issuer and the investor. It lowers the cost of local infrastructure and the federal government also saves on interest payments. In addition to the federal subsidy, infrastructure bonds are eligible for an additional income tax benefit under Section 80CCF.
The lock-in period for infrastructure bonds is five years. The issuer and the investor agree on the terms of the bond in advance. The lock-in period is likely to be reduced in the near future. This should increase the volume of transactions and participation. It is possible to exit the bond by purchasing it in the secondary market or through a buyback facility.
You can invest in long-term infrastructure bonds, which have a five-year or 10-year maturity date. This option gives you the opportunity to make cumulative interest payouts. You will pay tax on these interest payouts as per the slab rate you are eligible for. If you are in a higher tax bracket, you will pay more in taxes than you would have saved by investing in these bonds.
The rate of interest for infrastructure bonds varies from issuer to issuer. You should choose an issuer based on the credit rating and the interest rate. Choosing an issuer based on these factors will help you to choose the right bond for you.
While investing in infrastructure bonds, you must follow the Know Your Customer procedure. You will need to fill up an application form, provide your address, identity proof and PAN number.
NABARD rural bonds
Investing in NABARD tax free bonds is one of the most tax efficient investment options for the higher income brackets. These bonds offer tax benefits and reliable income over a long period of time. They are also secured and non-convertible. There is also a high possibility for capital appreciation.
These bonds offer a decent rate of interest. Typically, they have a tenure of 10 to 15 years. The interest is payable annually. However, investors can choose to buy back the bonds after five years.
These bonds can be held in physical form or in dematerialized form. Normally, they have a face value of Rs 1000. A person can hold up to 5 bonds in his/her name. These bonds can be traded on the Bombay Stock Exchange or the National Stock Exchange. Buying and selling in the secondary market is also possible.
There are four types of bonds issued by NABARD. These are NABARD senior secured bond, NABARD junior secured bond, NABARD junior unsecured bond and NABARD Capital Gains Bond.
The NABARD senior secured bond has a maturity of up to 20 years. The NABARD junior unsecured bond has a duration of up to 10 years. These bonds are issued by the National Bank for Agriculture and Rural Development. Unlike the senior secured bond, the junior unsecured bond is not backed by the Government of India.
Compared to private banks, NABARD offers a safer option. It is a government institution and has been given a AAA/Stable rating by CRISIL. It is the highest rating. This indicates that the bonds have the lowest credit risk.
These bonds have a basic exemption limit of INR 72,800. Those who have more than Rs 10 lakh in investment will be offered 0.25 less in coupon rates in each tenure.
The maximum amount of investment that can be made by an individual is Rs 15 lakh. A minor can apply for bonds through his/her guardian. The minimum application size for a retail investor is five bonds.
There are various factors to consider before deciding to invest in tax free bonds. In addition to the coupon rate, a person must also consider the financial goals.
Investing in a health savings account (HSA) is a tax-advantaged way to save for future medical expenses. Money in a HSA grows tax-free, and can be withdrawn tax-free for qualified medical expenses.
Health saving accounts allow you to invest in stocks, bonds, and mutual funds, as well as to make current bill payments. The funds in the HSA can be used to pay for qualified medical expenses, including co-payments, deductibles, and treatment of chronic illness.
The funds in an HSA can also be used to pay for other qualified medical expenses, such as a spouse’s qualified medical expenses. You cannot use a health savings account to pay for non-qualified medical expenses, such as cosmetic surgery.
In order to take a medical deduction, you must itemize your deductions. You must also be able to prove that the expense is not reimbursed or included in your other itemized deductions.
The IRS publishes a list of eligible medical expenses. Some of the items on the list include co-insurance, insurance premiums, and transportation to health care.
Despite the fact that there are a lot of deductible expenses on the list, the IRS does not guarantee that you will be able to deduct each and every expense. If you have substantial medical expenses, however, you may be able to take a tax deduction. You can only claim a tax deduction for medical expenses that exceed a certain percentage of your adjusted gross income. For example, if your income is $100,000, you will be able to claim only $7,500 in deductions.
Other medical expenses that are not eligible for a tax deduction include cosmetic surgery, nicotine patches, toiletries, dental work, and non-prescription medications. For more information, visit the IRS website.
If you are a self-employed individual, you can qualify for a tax deduction for your medical expenses. The amount of your deduction will depend on your income and the number of itemized deductions you are claiming.
In addition, you can save on your medical expenses by making contributions to a health savings account (HSA). These contributions are tax-deductible. You can use the funds in the HSA to pay for qualified medical expenses, including deductibles, treatment of chronic illness, and medical conferences.