Avoid the last-minute rush, and don’t take on a large tax-saving burden for March. Start now in December.
We are about to get into the tax-saving season. Most Indians will rush to buy tax-saving instruments such as life and health insurance, ELSS, PPF, etc., before the March 31 deadline. However, here’s a suggestion. Avoid the last-minute rush, and don’t take on a large tax-saving burden for March. Start now in December. Do some advance tax planning. You have more time to make wise decisions and evaluate all options with a little more breathing space. Here’s how it will help you.
Plan your tax
In December, you have the time to assess your tax liabilities and to decide which tax savers work best for you. Work with your accountant or assess your salary slip to determine your exact tax dues, and see how much you have already saved via rent, PF deduction, child’s school tuition fee, home loan EMI, and others. This way you know how much more you need to invest for saving taxes, and then you can make thoughtful decisions by not over- or under-investing.
Avoid last-minute rush
A last-minute dash to the bank or post office to purchase a tax saver may not be in your best interest. For example, your bank manager may sell you a product that provides poor returns that you would be stuck with for the next five years. So, working a little bit in advance can help you avoid poor decisions made in a hurry.
Assess your insurance needs
Opting for insurance only to claim tax benefits can leave you with high premiums and inadequate coverage. While health insurance is mandatory, you have numerous options for life insurance, so take the time to study them. Remember that your family’s financial security is at stake, so don’t be in a hurry to simply save some tax. Consider other investments that can fall under the Rs 1.5 lakh limit if you aren’t in need of insurance. Conversely, if you are looking for an investment to claim tax deductions and could benefit from insurance, apply for one. Consider an ELSS mutual fund that works both as a one-time lump-sum tax-saver and as a monthly SIP.
Plan & review investments
Taking advantage of the benefits under Section 80C, which allow you to claim up to `1.5 lakh of tax deductions, is easy when you have planned your investments thoroughly and effectively. Based on tax liabilities, see which instruments cover your insurance and investment needs best. Not all instruments are created equal; some are better than others!
Rather than following the herd, take the time to assess your options. Apart from insurance premiums, Section 80C allows tax deductions on a plethora of investments like PPF, EPF and home loans. Planning your investment ahead of time lets you evaluate your financial goals, align investments accordingly and also, earn attractive returns. For instance, with National Pension System (NPS) withdrawals becoming 100% tax-free, you can consider investing in them.
So, start planning for taxes now to avoid errors that may invite income notices, and make the most of tax deductions.
(The writer is CEO, BankBazaar.com)