Why do so many millennials ignore tax savings

Millennials are quite savvy when it comes to technology. But are they equally savvy to use this technology and become financially proactive? Let us find out.

Millennials have been accused of living a lifestyle that is much more demanding and consumption-driven than any other generation. It is clear that in order to be able to afford such a lifestyle without going into crippling debt is if they are maximizing their salary-in-hand and are not involved in tax saving.

A survey1 indicated that 57% of millennials invest in fixed deposits. It is surprising because traditionally, fixed deposits have been the preferred mode of investment for the risk-averse tax-savers. The same survey also found that 36% of millennials are also investing in the Provident Fund and Public Provident Fund accounts.

Even so, millennials are supposedly unaware of the tax deductions and tax saving avenues. For example, many young professionals aren’t aware that the interest they pay on their education loans is eligible for income tax deduction under Section 80E of the Income Tax Act.

The question to address here is - why are millennials choosing not to indulge in tax saving?

A good starting point to answer this is the increasingly changing nature of jobs and employment. An increasing number of millennials are moving from traditional or conventional job profiles into contractual jobs, freelancing, project-basis gigs etc. Digital nomads abound. In such a scenario, they are aloof from the usual tax-exempt components that come with a salary in a conventional structure. The perks of HRA, LTA, Uniform allowance, etc. are unknown to them. The straightforward ways of tax saving are unknown to them.

Therefore, this explains why their financial plans are unclear at present. With increasing awareness about tax saving modes and avenues, millennials are joining the clique of savvy investors who look at both future returns and present tax savings.

[1] Source: https://www.livemint.com/Money/cclXG8TD2kBVPIKksT2EGJ/91-millennials-make-their-own-financial-decisions-only-56.html