Don't Be A Fool, Plan For Your Taxes In April
Intelligent and early planning saves you from exigency, safeguards your finances
As far as tax planning is concerned, the concept of last-minute planning is a luxury best avoided. Your hard-earned money deserves to be saved from taxation via intelligent planning, and each rupee saved should create further wealth.
The first and most desired benefit of early tax-planning is to increase take-home salary. You need to be aware of your anticipated tax-planning expenses and investments, which will help you intimate your employer regarding expected lesser tax incidents. Your employer will deduct lesser tax at source (TDS), which will increase your take-home salary.
Secondly, during any given financial year, we conduct many expenses unknowingly, which include tax-saving benefits. For example, our kids’ school fees can save us section 80C of the Income Tax Act. With early planning, we may have an idea of how much of the 80C bracket can be utilised by such unknowingly-conducted expenses. This will help us to reduce spending on certain tax-saving investments like PF which are, comparatively, not as remunerative.
Thirdly, ELSS is one of the best tax-saving instruments for those who are in their 20s, 30s or early 40s. The best way to invest in ELSS is through SIP (Systematic Investment Plan). This helps us to time the market scientifically. If, after early tax-planning, you realise that you have provision for ₹ 60k more investment under the section 80C bracket, then you can plan an SIP of ₹ 5 k per month for your selected ELSS fund. This will help you to get the best compounding returns as well as save on taxes.
Fourthly, with early tax-planning, we become conscious about savings. Automatically, it helps to keeps tabs on our spending. If we plan our taxes at the end of the year, the equation is ‘Income - Expenses = Saving’. If we plan taxes in April, however, the equation becomes ‘Income - Savings = Expenses’, which is very good habit to inculcate.
Fifthly, early tax planning makes you aware of taxable capital gains or any other income that you earn. This helps to pay advance tax, which ensures saving on interest under section 234B of Income Tax Act.
Let’s bring discipline into our financial lives and start planning taxes right from the beginning!
The author is Founder, FinBingo.com
DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.