Turns out saving up as a millennial is a lot more fun if you see it grow in the near future without fear of paying more taxes if you invest in Tax Saving Instruments. Hopes of having more money at your disposal makes losing out on instant gratification less painful. I’m not talking about putting your money in an ordinary bank account where you only receive interest as returns.
There are a few interesting Tax Saving Instruments where you as a can lock a part of your salary and earn tax-free returns.
ELSS – it is a type of mutual fund with a 3-year lock-in period. There are two options under this type, dividend, and growth. Under the dividend option, you are required to make regular deposits to the fund while under the growth option you set aside the deposit as a lump sum. Returns on ELSS are tax-free.
NPS – if you’re looking at spending the last years of your life travelling the world or reading on the porch of your beach house somewhere in the United States, you should be considering the NPS fund. One major downside, that’s honestly not too bad, is that you have to lock your money away until you retire. Or rather, until you reach the retirement age set by the government. You can keep depositing to this account even as you change jobs or your residential address. The investment amount is flexible however only 10% of your salary is tax-deductible. You only need to be between 18 and 60 years of age.
ULIP – this fund is a type of life insurance that is subject to the capital market risks (refers mostly to all the big stock market scams India has seen). You can either deposit a lump-sum premium amount or deposit money at regular intervals. All withdrawals under ULIP are tax-free.
Provident Fund – this one is my favorite simply because it required the least amount of effort from my end. Companies with registered financial duties towards employees set up their provident funds and every month make its contribution. So essentially, a part of your salary is deducted at source and routed to your PF account. Upon reaching retirement you are given both the principle amount and the interest it earned, with tax-free returns of course. This account is transferred to you to every new company you join.
Savings Account- this is kind of my least favourite because it has less interesting offers and it’s the most vanilla of all. It’s also the simplest of open and operate. A savings account can be opened with any private or public bank by anyone. You make regular deposits and the interest you earn is not taxable but only up to Rs 10,000 per year.