Tax Planning in Age Group of 20-30

The twenties are the starting points of our careers. Since we are young, our risk tolerance is high. Investments made during this period with a long horizon will benefit from the power of compounding over the long term. Investments should be the major focus of tax planning in the age group of20 – 30. Here are some tax-planning ideas for this age-group:-

• Your contribution to the employee provident fund will go towards the eligible 80C investment. Your employer deducts your contribution to your PF account from your monthly pay cheque .

• You should start planning for your long term financial goals, like retirement planning. Since your risk tolerance at this age is high, your asset allocation should be weighted towards equities. Equity Linked Savings Schemes (ELSS) is an excellent investment option for this age group. Equity Linked Saving Schemes (ELSS) is one of the most popular investments allowed under Section 80C, since you can avail triple benefits of tax savings under Section 80C, capital appreciation and tax free returns. 

• An important part of financial planning is to ensure that you have adequate life insurance cover. While life insurance premium up to the 80C limit is eligible for tax deduction, tax saving should never be the primary consideration in getting life insurance. 

• You should ensure that you have adequate health insurance or Mediclaim cover. Your employer may provide you health insurance under the group health insurance plan and so you may not need to buy additional Mediclaim. But you should make sure that the health insurance cover in your employer’s group health insurance plan is adequate for your needs. You should check what kind of benefits your employer’s group insurance policy offers. Check what is the total amount and nature of illnesses that your company’s group insurance covers. If you have a family, does the policy cover your spouse, children, parents and other dependents? If your company’s group insurance is not adequate for your needs, then you should buy additional Mediclaim to protect your family’s healthcare needs

• If you had taken an educational loan for your higher education and are now repaying the loan, you can claim deduction on the interest paid on the loan under Section 80E of the Income Tax Act. The entire amount of interest paid in the year is eligible for deduction. There is no upper limit. However, there is no tax benefit for principal repayment. You should note that this benefit also extends to loans for higher education of your spouse, if you are paying the interest on her loan as well.

• You can also invest in Public Provident Fund (PPF). PPF is one the most popular choices under Section 80C of the Income Tax Act, since it offers good interest rates, ensures capital safety and tax free returns.