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Every parent wants to give their child the best facilities. So, as a parent, your main priority is to fulfil all their necessities and secure their present and future. However, with the rise in educational expenses, meeting all the financial requirements can be challenging. Therefore, there is a need for financial planning to ensure your child gets the best higher education without worrying about expenses.
Let’s look at how you can save money through a tax-efficient plan for your child’s education.
Best Tax-Efficient Savings Investment Plans for Your Child’s Education
Education is becoming very expensive in India, and the best way to ensure you provide the best higher education to your child is through a savings plan. Under the Income Tax Act of 1961, Section 80C allows the most efficient way to save taxes through investments and can get a deduction of up to 1.5 lakh per annum on specified expenses and investments.
Here are some tax-efficient plans you can take for your children:
1. Public Provident Fund
PPF is the most preferred tax savings and long-term investment method with a lock-in period of 15 years. As a parent, you can open an account for your child with INR 500 as a minimum investment per month and a maximum of INR 1.5 lakh per annum. This INR 1.5 lakh includes accounts opened in your or your child’s name.
It will help you build savings for your child’s education and give you tax relief. You can withdraw this amount if needed for your child’s education or to become a major, and your child can continue operating the same account for savings purposes. This is also a good tax savings for senior citizens, where the maturity amount they will receive will be tax-free.
2. Sukanya Samriddhi Yojana
This savings plan is excellent for the parents of a girl child and must be opened before the child turns 10. SSY has the highest tax-free returns, 8-9%, with a sovereign guarantee. You can open this account on your daughter’s behalf with a minimum of INR 250 and a maximum deposit of INR 1.5 lakh per annum.
The plan requires you to deposit regularly for 15 years, and once your child turns 18, it can be withdrawn with a lock-in period of 21 years from the date of opening. Any contribution towards SSY and the withdrawn amount on maturity are exempted from the tax.
3. Equity Mutual Funds
Since equity mutual funds invest in reputable, less volatile companies, they provide inflation-adjusted returns, making them an excellent choice for long-term gains. Investing in large-cap funds will be the right choice if you are saving money for your child’s higher education.
It is amongst the best tax-saving MFs and a secure investment. Even though equity MF has many benefits, you must always keep a close watch on market fluctuations, especially close to meeting your financial goals. If you are close to withdrawal, consider moving your returns from equity to debt for a safe return.
4. Life Insurance
The most excellent present a parent can give their child is life insurance. This option comes in handy, especially if something unfortunate happens to you, such as a terminal illness, accident, or death. It ensures that your child’s future is always financially secure. Besides, the premium and the maturity amount are exempt from tax.
You can easily find an insurance plan, like term insurance, savings-cum insurance, or wealth-generation, tailored to your needs. When considering your child’s education, saving-based plans will be perfect, saving for their future and offering tax benefits and life insurance coverage.
5. National Savings Certificate
NSCs are an excellent savings instrument offering fixed returns with a five-year lock-in period. Since the lock-in period is short, these savings can be fantastic if you have not invested early and your child is about to finish school. Since the government backs it, it is a safe investment with tax deductions under Section 80c.
Conclusion
As a parent, when you select a plan for saving money for your child’s education, consider the educational needs and calculate the cost of different educational types, both domestic and international. You should also evaluate your investment horizon and risk tolerance. For instance, high-risk investments may offer better returns but may have potential risks and losses as the market fluctuates.
Irrespective of your chosen plan, remember that you must regularly contribute and save little by little over time to accumulate a reasonable amount for your child’s higher education. Moreover, you will also benefit from compounding with consistent investments, resulting in better returns and a secured financial future for your child.
While you explore plans for your child’s education, you can also check out tax savings for senior citizens and give them as a gift to your parents.
