5 Reasons why you should start tax planning now
When it comes to financial planning, most people forget an essential aspect – tax planning. This process of personal finance is often thought of as complicated and an obligation that must be fulfilled. Not many people understand that tax planning can help you build wealth and meet your financial goals if you are smart about it.
Research shows that last year (in 2022), 41% of taxpayers admitted that filing taxes by the 31st July deadline would be difficult. This is an obvious consequence of putting off tax planning until the last minute. How often have you heard friends and family scrambling to make tax investments in February or March just because their CA compelled them?
With a bit of foresight, it is possible to plan your taxes through the year and save yourself the trouble of making poor choices in the final quarter.
Why Should You Plan Your Taxes in Advance?
Tax Planning Can Save You Money
The obvious advantage of tax planning is saving money. When you effectively reduce your income tax liability, you are sure to be left with an excess sum that would have otherwise gone towards tax. This amount can be used for other purposes, such as meeting your financial goals or further investment.
You Can Make The Right Investments
When you put off tax planning for the last minute, you will often make tax-saving decisions that may not be prudent. For instance, you could reduce your tax liability by up to Rs. 1,50,000 when you invest in 80C instruments. There are many 80C instruments to choose from. When planning at the last minute, you may dump your money into one instrument to save tax. However, if you plan your investments in advance, you can spend time understanding the RoI of each investment, thereby choosing the right combination that will help you meet your financial goals.
You Can Build Wealth
Who says that tax-saving investments are to reduce your tax liability? When done right, they can help you build long-term wealth. For instance, investing in Equity-Linked Savings Schemes give you market-linked returns. Public Provident Funds help you build a retirement corpus. If you plan your taxes at the beginning of the financial year, you will have more time to invest based on your financial goals. You will also have time during the year to pivot your allocation if you think some investments need to be fixed.
Restructure Your Salary
Did you know that there are different salary components you receive that you can restructure to reduce your tax liability? For instance, you can claim Leave Travel Allowance as an exemption twice every four years if you take a domestic trip with your spouse, dependent parents, children or siblings. Some other exemptions you can claim are House Rent Allowance, Child’s education and hostel allowance, phone bills, internet reimbursement, etc. Early tax planning can help you identify areas where you can claim deductions and request your employer to structure your salary accordingly.
Peace of Mind
The most significant benefit of tax planning is that it will give you peace of mind. You don’t have to spend the last few weeks of the financial year trying to figure out how to save money on taxes. You will have a solid plan to work with right from the beginning. You can also be at peace knowing that your money is working for you while your tax obligations are being met.
What To Do If You Haven’t Started Tax Planning Yet?
Have you missed the bus to early tax planning? No problem! You’ve still got some time to make amends. Instead of blindly investing in tax-saving instruments without a clue about your goals, spend some time understanding what tax planning is and how you can optimize your investments and exemptions to work for you. Learn how to file ITR and ensure you meet the deadline to avoid fines.
If you need help, our #RelaxForTax e-book will help you understand the various aspects of tax planning. Equipped with this resource, you can take care of your tax needs for now while also effectively breaking away from the cycle of putting off tax planning for the last minute.
If you want professional guidance on maximising your tax investments, then we have a series of #RelaxForTax webinars with expert fund managers to give you an insight into tax planning. Some of the ones you should absolutely watch out for are:
- #RelaxforTax Tax Planning with National Pension System (NPS) with Sree Kumar P, CDO, ICICI Pru PFMCL and Siva Kumar K, CIO, ICICI Pru PFMCL on Saturday, 28th Jan 2023, at 12:30 pm
- #RelaxforTax Tax Planning with ELSS in an exclusive conversation with Harish Bihani, Fund Manager, ICICI Prudential AMC, at 4 pm
- #RelaxforTax Tax Planning with Insurance 6th Feb at 11am
- #RelaxforTax Tax Planning with ELSS with Roshi Jain, Fund Manager - HDFC AMC on 9th Feb 2023 at 4 pm