An early start in tax planning can help you to reap the benefits of financial tools like insurance, mutual funds, Public Provident Fund, and more. Timely and efficient tax planning can save you the last-minute scramble to save on taxes.
Tax planning can be done at any point in time within a financial year. However, here are some reasons it is better to get your tax plan ready as the year begins:
Section 80C lets you invest up to Rs 1.5 lakh per year. That leaves you with monthly investments of Rs 12,500. You might think that you can allot the entire amount to instruments like Public Provident Fund (PPF) at one go even at the eleventh hour. But you might just run out of funds. Hence, it is wiser to allot a nominal amount of Rs 12,500 on a monthly basis right from the beginning.
Also, keep in mind that your employer may end up cutting more tax from your salary towards year-end. They may do this to make up for any deficiencies related to the tax deducted at source (TDS).
Spread out the amount you intend to invest over the year. This would save you from the hassle of doing things at the last minute. It would also lessen the financial burden on you at the end of the year and shield you from volatile market conditions.
A proper understanding of Sections 80C and 80D is very important. Familiarity with the investment tools and deductions available under these sections can give you a chance to plan your investments.
Section 80C, for example, includes tax deductions on PPF, National Savings Certificate (NSC), equity-linked savings scheme (ELSS), children’s tuition fee, home loan, life insurance, etc. Considering the many options, early planning can help you channel your financial goals in the right direction.
Putting together a financial strategy early on is efficient. Once you declare your year’s tax-saving investments to your employer, they will start deducting TDS from your salary. Getting the details right towards the beginning of the year allows your employer to deduct the correct amount of tax. This spares you the hassle of seeking refunds after filing your returns. It also protects you from the burden of high TDS deductions towards the end of the year.
In short, an early start in tax planning can save you a lot of inconvenience at year-end.
Tax-saving investments are the key to savings, and the right strategies can make all the difference. Outlined below are the steps you should follow to develop an effective tax-saving strategy:
Calculate your tax liability based on the estimates of your annual earnings. This will give you a clear idea of the amount of the maximum deduction you can claim. Now, divide your total tax-saving investments into 12 instalments. Make the payments in advance to reduce your burden at the end of the financial year.
Do your present investments cover the required deduction? If not, then choose a suitable investment instrument. Purchasing term life insurance could be useful if you are not insured yet. Here, you pay a low premium and get high coverage. The premium remains tax-exempt under Section 80C. If you are already adequately insured, think about investments in ELSS or PPF, for example. These could help you build a corpus for future goals while saving on income tax.
A health insurance plan safeguards your finances during medical emergencies. Your savings remain unaffected even when you are required to meet unexpected expenses due to medical contingencies.
In addition, you should have a thorough understanding of the following. This will help you to make the right tax-saving investments:
If you want to keep the last-minute stress at arm’s length, simply having a tax-saving strategy is not enough. You need to put it into action quickly. This can save you a lot of money, time, and trouble. Hence, it is advisable to:
If you are new to this and wondering where you can invest to get tax deductions, this should give you a good start:
Section 80C permits a tax deduction of up to Rs 1.5 lakh per year under PPF investment.
There are mutual funds that offer you tax benefits. If you are yet to meet the quota of Rs 1.5 lakh under Section 80C, try investing in ELSS. This would fetch you good returns as well.
A term life insurance also carries a tax deduction under Section 80C. It covers your life and offers accidental death benefits. It secures your family’s future in your absence and acts as a tax deduction tool.
These are just a few to start with. Thorough research will take you a long way in saving on income tax.
Tax planning should be an important part of your yearly financial planning. The sooner you start with it, the more cost-effective it will be for you. Delaying your tax plan will only enhance the burden towards year-end.
Read more: Investment under other income
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