When it is the last quarter of the financial year, you would find people desperately looking for options to invest their money in. The idea behind investing the funds at that time of the year is to reduce the tax burden. Thisexercise by which an individual manages to legally save on taxes is called tax planning. However, to reduce your tax burden effectively, it is essential to choose the right investment plans.Read more
Since, we have about two months for the financial year to end; it is the right time to plan your tax if you haven’t done it yet. A good tax plan is one that not only reduces your tax outgo but also takes you a step closer to your financial goals.
Tax planning is essential for attaining financial peace of mind, but, we think of tax planning only when we are impelled to present our investment proofs. It is then that we start exploring the best investment options available.
A well-planned investment can help save your hard earned money for future. However, this can only be achieved if we make an informed decision after evaluating all the available options, instead of zeroing-in on the easiest available option. Nobodywould want to buy multiple policies offering similar benefits when you have an array of available investment optionssuch as ULIPs, Senior Citizen Savings Schemes, EPFs, PO Deposits, PPFs, education loans repayment, home loans repayment, etc.
Additionally, effective tax planning also saves you up to Rs. 56,000(over Rs.1, 50,000 deductions available under Section 80C).Apart from investing in life insurance, FDs, SIPs, PF, under Section 80C, you can also invest up to Rs35000 in health insurance and claim tax benefits under section 80D.
The earlier you start, the more you save; that’s how to go about tax planning.The best time for financial planning is the beginning of the financial year (April)Year end is not an ideal time to invest as most of us face cash flow constraints.
Therefore, the best time for investing is the beginning of the year. But, it is also a possibility that someone might not be able to invest at the beginning of the year due to some situations that might not have been under their control.
In such cases, when you are looking at last-minute options, you should invest in instruments that can be issued within the stipulated timeframe so that you can submit the proof of those investments in time and avail the tax benefits. The options that you invest in should add value to your financial portfolio and also help you avail maximum benefit.It is imperative for us to know about each of the instruments that fall under Section 80C, because most of the deductions that we all claim, falls under Section 80C.
Remember, it is essential to evaluate all the available options in order to maximize tax saving.It is also recommended to seek some relevant information from the IT ACT (1961) (which is packed with information on tax paying and tax saving) before making a decision. We might be already aware of most of the tax saving avenues, but, some of them still continue to be unpopular.
Products available under Section 80C include Life Insurance, Public Provident Fund (PPF), Equity Linked Savings Schemes (ELSS), Senior Citizens’ Saving Scheme (SCSS), New Pension Scheme (NPS), Bank Fixed Deposits and Traditional Pension Plans.
Bank Fixed Deposits (FDs) and National Savings Certificates (NSC): Bank Fixed Deposits and National Savings Certificatesscore high on safety, cost and availability. You can choose to invest in these if you are comfortable with a 5yr lock-in period for better returns. However, this kind of investment is very liquid, which means, it can be used as collateral for raising loan at the time of need. The interest rates are comparatively higher vis-à-vis PPF and income is taxable.