Ahead start works wonders in most areas of your life and tax planning is no exception. Last minute tax planning is often a compromise and does little to further your financial goals.
Instead, advancing this activity by a few months with some careful planning and execution can save tax and help achieve your financial objectives.
When is the right time to start tax planning?
Tax planning in India is often seen as a last minute maneuver to squeeze some additional money by saving tax.
The best time to start tax planning is at the start of the financial year which is April. Advantages of tax planning are manifold with an early start.
You not only save tax, but you opt for the tax-saving options that are best suited to your needs and goals. Not surprisingly, you end up reaping serious benefits of tax planning.
How to go about tax planning
If you want to maximize the advantages of tax planning you must get a good handle on Section 80C. This is the most relevant section for individuals and the various investments and expenses associated with it can go a long way in making the most of the benefits of tax planning.
Here are some simple steps to make tax planning work for you.
- Section 80C offers taxpayers a ceiling of Rs 1,50,000 for claiming tax benefits. This number – Rs 1,50,000 is important and tells you how much money you can save depending on your tax bracket. It is your starting point and you must work backwards by selecting from the options 80C offers you like life insurance, tax-saving mutual funds (ELSS), EPF, PPF, among others.
- Section 80C is not just about investments, there are also expenses that can be claimed as deductions. For instance, children’s tuition fees qualify for 80C benefits and can help lower taxes. Most individuals incur tuition fees anyway so it makes sense to claim tax benefits when you can.
- Another not-to-be-missed option at least for salaried taxpayers, is contribution towards the company EPF (employee provident fund).
- Ensure you and your family are adequately covered against life’s uncertainties. What better way to achieve that than opting for a protection plan. Life insurance is an important component of the family breadwinner’s portfolio and must be taken at the earliest. What makes it even more important is the tax benefit under Section 80C towards the premium payment.
- If you are the type who is comfortable taking risk to achieve long-term goals, opt for tax-saving mutual funds or ELSS (equity-linked savings scheme). The funds work like regular equity funds, except for a three year lock-in. Investments in tax-saving funds qualify for Section 80C benefits.
Curated from Early Tax Planning – Benefits and Advantages