Financial Cocktail Samosas: Bitesized Money Morsels For You, 10/05/2023

Top Tax Saving Options Other Than 80C

When it comes to tax-saving investments, most people are familiar with Section 80C of the Income Tax Act. However, there are several other options available that can help you save on taxes.

Here are some of the top tax-saving options other than 80C:

1) Health Insurance Premium: Premiums paid towards health insurance policies for self, spouse, and dependent children are eligible for tax deductions under Section 80D. An additional deduction of ₹ 25,000 is available for parents, and if they are senior citizens, the limit is ₹ 50,000. Thus, the overall rebate ranges from ₹25,000 to ₹1 lakh, depending on the age of your family members in a given financial year.

2) National Pension Scheme (NPS): The taxpayers can save an additional tax by investing up to ₹ 50,000 in NPS under Section 80CCD(1B). This is over and above the ₹ 1.5 lakh limit available under Section 80C.

3) Home Loan Interest: You can claim deductions on Interest paid on a home loan under Section 24(b). The maximum deduction available is ₹ 2 lakhs for a self-occupied property. For a let-out property, there is no limit on the amount of deduction but the received rent is taxable.

4) Education Loan Interest: Interest paid on an education loan is eligible for tax deductions under Section 80E. There is no limit on the amount of deduction, and it is available for a maximum of 8 years.

5) Donations: Donations made to charitable organizations are eligible for tax deductions under Section 80G. The deduction amount varies depending on the type of organization and the amount donated. Eg, donations to our NGO, HFI Welfare Foundation, qualify for this deduction.

6) Saving Account Interest: The interest earned up to ₹ 10,000 from savings account deposits is deductible under Section 80TTA.

However, tax savings should be done with care and should not be ‘the purpose’ for an investment. Investing in something like NPS should not be done just to save a small ₹15,000 of tax in a year and then have the invested amount stuck there for life for getting just a tiny and fully taxable pension.

(Contributed by Yogesh Gola, Financial Planner, Team Vikrant, Hum Fauji Initiatives)

P2P investments: Do high returns justify the risks taken?

Investment options like fixed deposits (FDs), stocks, mutual funds, and gold are quite popular. But of late many alternative investment options have also sparked curiosity among investors. Peer-to-peer (P2P) lending is one of them.

What is P2P Lending?
P2P lending is a form of direct lending of funds to eligible borrowers, utilizing dynamic fintech technologies. P2P provides a source of getting loans for borrowers who may not be eligible to get such loans through traditional banks or other financing companies.

Thus these platforms provide a win-win situation for borrowers and lenders – borrowers get easier access to funds and the lenders get better returns as compared to traditional investment options.

While P2P lending has many pros, there are also some cons to consider.
The credit risk associated with P2P lending is relatively high and there is no regulatory authority or government protection as of today should something go wrong.

P2P, of course, uses its internal safeguards to minimise the risk. A common approach to minimizing risk is diversification which works as follows.

Suppose you invest Rs 10,000 in a P2P platform. On the other side, there’s a small borrower who wants Rs 10,000. And there would be many such borrowers wanting different amounts of money. Your Rs 10,000 could be spread as 40 tiny loans of Rs 250 each to 40 different individuals. This means that the platform has diversified your risk by giving small loans to 40 different persons rather than to One person. On the other hand, the borrower of Rs 10,000 could also be actually getting his Rs 10,000 from 40 different individuals. In addition, diversification also could mean spreading your capital over a wide range of credit grades.

Whatever be the process of minimizing risk, the fact that P2P ventures are risky does not still go away. Hence P2P investing should be just a relatively small percentage of your total investments. While the potential for high returns is quite tempting, putting your entire portfolio in that pursuit could turn out to be quite risky.

While this model provides an opportunity to earn higher returns, it should be opted for only from surplus funds. It should never replace your other regular investments especially if they are linked to your future financial goals.

(Contributed Sweta Kumari, Financial Planner, Team Arjun, Hum Fauji Initiatives)

Budgeting Is Not Restricting, It’s Empowering

Earning money is easy but managing it is not the cup of tea.

Do you know that most of the salaried people in India spend their entire last month’s salary before the due date of their current salary?

People often failed to manage their finance due to a lack of budgeting. While many people look at a budget as something that limits their spending, actually the opposite is true! A budget is a snapshot that tells you how much you can spend in various categories and helps you understand where your money is going and thus, puts you in the driver’s seat.

Below are some best budgeting strategies to deal with your finance.

The zero-based budget strategy: It is the most detailed budgeting method you can use. The basic idea is to give a job to every penny you earn. Whether it is going to savings, bills, household expenses or EMI, every penny that comes in gets assigned to a budget category.
It is helpful for people who enjoy having a very granular view of their money and want to put the biggest focus and effort into reaching financial goals.

The envelope budgeting strategy: This is the traditional method of budgeting used long before smartphones and budgeting apps when people used cash for every transaction. Here you withdraw cash for your monthly budget at the start of each month and allocate money to different envelopes for different purposes. Once the cash is gone, you stop spending on that category or ‘borrow’ it from another. If you follow it well, envelope budgeting can help you stop wasting money on frivolous purchases and focus your money on the places that matter the most to you. You can use it in the current era by using Excel in reverse deducting mode.

The 50/20/30 budgeting strategy: 50/30/20 rule is formulated for those who mainly depend on a single source of income, like a monthly salary, for livelihood. As per this rule, post-tax income should have 50% allocation to needs (Roti, Kapda, and Makan), 30% to desires (Vacations, Entertainment and Indulgences) and the rest 20% to savings and investing for future goals and healthy retirement.

While the above tells you a lot many ways to do your budgeting, remember that your best strategy is the one you will actually stick to!

(Contributed by Ujjwal Dubey, Associate Financial Planner, Team Prithvi, Hum Fauji Initiatives)

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