With December inching to a close the last quarter of the financial year is approaching. This quarter sees a major investment activity as everyone plans their taxes and invests in tax-saving avenues to reduce their tax liability. What about you? Do you also leave your tax planning to the last possible minute?
Tax planning should not be a rushed affair. You should choose investment avenues which not only save your taxes but also fulfill your financial goals and suit your investment horizons. Planning your taxes, therefore, should be done after considerable thought, research, and strategy.
You should find out the tax saving investment avenues which are available for your investments and then invest in the avenues depending on your goals. When you delay tax planning till the end of the year, here’s how you lose–
You don’t get sufficient time to plan your investments
Last minute tax planning gives rise to ad hoc investments. As the financial year draws to a close you choose any investment avenue which promises a tax relief. You do not consider whether the investment would be suitable for your financial planning or not. As such, you invest without proper financial planning and end up with a tax-saving financial portfolio and not a goal-oriented one.
You might miss out on other tax saving avenues
Section 80C of the Income Tax Act is the most popular tax-saving section which lets you reduce your taxable income by INR 1.5 lakhs. But is the section the only one which allows tax saving?
No, there are other tax saving avenues which you can choose. For instance, Section 80D allows tax relief on the premiums paid for a health insurance policy, Section 80CCD allow additional tax saving of INR 50, 000 if you choose to invest in National Pension Scheme (NPS), Section 80DDB allows you a tax relief if any family member is suffering from a disability and so on. When you don’t have time to plan your taxes, you might miss out on other tax-saving sections and pay a higher tax.
Your returns are reduced
You know that returns depend on the period for which you hold your investments. If you keep your investment invested for a longer period of time, you earn higher returns. When you plan your taxes well ahead of time you can invest your money early.
As you delay tax planning, your investments are also delayed. As your investments are delayed the tenure for which you remain invested also reduces. As the tenure reduces, your returns reduce. So, planning your taxes early on helps you invest early which also provides you with better returns.
These losses stress on the fact that tax planning should be taken on early in the financial year. You should plan your taxes and then create your financial portfolio keeping two main aspects in mind– goal planning and tax-saving.
When you start early you get ample time to build your portfolio based on these two aspects. No scrambling for last-minute tax filing and you can also find out about other tax-saving avenues.
If you are late this year in planning your taxes, there’s no better time to start than now. Start planning now when you still have a couple of months in your hand. From next financial year, however, remember to start tax planning from the very beginning itself (i.e. April). You would have time on your hands for research and you can plan for a healthy financial future which not only brings financial independence but saves taxes too.