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Why do so many Millennials ignore Tax Savings?

Introduction

Millennials are brilliant when it comes to using technology and handling their finances. Despite this, there is growing evidence that millennials are poor tax savers or, at the very least, poor tax planners who scramble at the last moment to invest in tax-saving instruments.

There are many reasons why this happens. Some of these are outlined below:

1. Increasing Lifestyle Inflation

Millennials live a much more consumer-driven and demanding life than any other generation of the past. Impulsive shopping, maintaining the status quo and living beyond their means often contributes to lifestyle inflation which is not commensurate with their earnings. As a result, they have lesser disposable income to invest. This is often disadvantageous when it comes to tax because if they could redirect some of their money towards tax savers, they would be able to have more money to meet their lifestyle expenses.

when it comes to investments and tax planning millennials are poor tax savers or, at the very least, poor tax planners who scramble at the last moment to invest in tax-saving instruments.

Additional read: The right steps to investments for Millennials and Gen Z

2. Growing Debt

Millennials have a lot more debt than their previous generations. This is mainly in the form of education loans and credit card bills. In pursuit of a better life, millennials find themselves allocating a majority of their earnings towards paying off their debt. This means other financial obligations such as tax planning are out of reach. It would be a good idea to limit debt and enhance income, tax saving instruments can support them in this mission. Better Investment Avenues

It's not that millennials are not aware of tax saving instruments. In fact, millennials are pretty financially informed. Therefore, unlike their older counterparts, they prefer to invest whatever they can in instruments that will generate wealth for them, such as stocks and mutual funds. As per a survey* 64% of Indian millennials invest in mutual funds while 28% invest in equities. While these do not give tax benefits, they definitely help with millennials' other priorities in terms of meeting their financial obligations.

How Can Millennials Be Better Tax-Savers?

In order to save more on taxes, millennials need to consciously invest in tax-saving strategies. In order to make an informed choice, it is necessary to be familiar with the options on the market. For instance, investing in health insurance can help with saving taxes and so can life insurance investments. These are available at nominal premiums. Not only are these great tax saving avenues, they also secure financial futures.

Interest paid on education loans are eligible for tax deductions.

For millennials looking to benefit from mutual fund investments, Equity Linked Savings Schemes may be a good tax saving option. For a lock-in period of three years, they are eligible for tax deductions of up to Rs. 1,50,000 under Section 80C of the Income Tax Act if they opt for the old tax regime. Moreover, contributions to ELSS can also be made through regular investments instead of a lumpsum.

Planning tax savings smartly and consciously can help millennials save tax without it pinching their pockets.

Additional read: Tax Saving options beyond Section 80C

Conclusion

The key to making smart tax savings investments is to be knowledgeable about the different options available. Millennials can get better at tax savings if they spend some time to understand how it can fit into their existing lifestyles.

Sources

Disclaimer – ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. AMFI Regn. No.: ARN-0845. Name of the Compliance officer (broking): Mr. Anoop Goyal, Contact number: 022-40701000, E-mail address: complianceofficer@icicisecurities.com. Investment in securities market are subject to market risks, read all the related documents carefully before investing. We are distributors for Mutual funds. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Please note, Mutual Fund related services are not Exchange traded products and I-Sec is just acting as distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.

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