Posted on: May 8, 2015 Author: Sudhir Kaushik
View quick summary Waiting till the last minute to do your Tax Planning, can make you lose the Tax benefits you deserve. Here’s what you can still do.
You might have completed or must be about to complete investment declaration to your employer for tax deduction every month from hard earned salary. This annual ritual is being carried out by lakhs of salaried individuals year on year without making any effort to minimize the tax deduction and ensuring more money for their own financial goals. More money in hand is everyone’s goal but there are very few who actually achieve it. There are so many things today’s working professionals endure just to ensure more income and the affordability of a good lifestyle. Generally, you work smart and hard for higher CTC and get it too. Thereafter, you ignore planning and start believing that nothing more can be done to ensure more money in hand. The result is that the money gap starts building between you and your peers drawing same salaries, which only widens year on year. You keep on wondering why your peers have more money than you. It is simply because, they believe, think, plan, invest and spend money differently.
Financial security is the end goal of every individual. With the ever changing economical conditions, ensuring stability is a major concern. Better tax planning can help you achieve this goal in a comprehensive manner. However, most of us still reserve the major investment decisions for the last moment. We work hard through the year to make money and harder to save it, but wait for the year-end to plan our taxes. This last minute tax planning does more harm than good, and you stand to lose some of your hard earned money by poor planning. Hasty decisions and wrong investment calls can lead to locking of your money into less beneficial or fruitless avenues. Tax planning in advance is the first step towards better financial management.
Can anything still be done to save the day?
The answer is YES. It’s an old saying that any decision made in a hurry is not a good one especially in the case of crucial financial decisions. You are still in the beginning of the financial year. Start tax planning now itself and brace yourself from making these common mistakes while planning your taxes during the 11th hour:
Investing without a goal: Tax planning is like planning a long awaited journey. When you plan to travel from one place to another, the first step is to fix the date of journey. Then, you choose an appropriate mode of transport, based on the time it will take and the price you are willing to pay. Tax planning is no different. You need to set your financial goals and then assess the investment options that match your needs. You need to be clear about what you want and then look at the options that will help you achieve it.
Overlooking your Options: Remember how you can never find your keys when running late! Or something kept right in front of you skips your notice. During the last minute tax saving rush, you too often overlook the choices before you that can get you more returns on your investments and greater tax benefits. For example, ELSS funds are a good way to save tax for someone who has a high risk appetite. However, if the taxpayer has woken up late and there is a time crunch, he may put his money in a low-yielding NSC or a bank fixed deposit. Senior citizens may be lured to invest in other options even though the senior citizen’s savings scheme gives them the most suitable tax benefits under section 80C.
The Insurance Lure: Most often than not, we end up investing in Insurance schemes considering them as a great investment. The last quarter of the financial year is the busiest time for the insurance industry. Insurance agents are known for using the panic among taxpayers to push policies that get them higher commissions. Taxpayers, in the hurry to exhaust their section 80C deduction limit of Rs. 1,50,000, don’t even look at the basic features of an insurance plan, leave alone the fine print. Moreover, agents sweet-talk you into buying a ULIP or an insurance policy that you may not even need. Therefore, it is critical for you to understand what a policy has to offer and the difference it will make to your investment portfolio. Take time to study the fine print before jumping in.
Not knowing tax rules: You cannot win a game without knowing its rules. The same scenario applies to your tax planning as well. You can only succeed if you are aware of the provisions in law that you can use to your benefit. Salaried individuals often mistake the proof submission deadline set by the employer as the last bell. In a hurry to avoid deduction of extra tax, they take random measures, without evaluating the effect of their actions on their finances. All you need to know is that the last date for making investment decisions is March 31. While this is not the best time to make investments, you should rather take a rational decision because the law allows you to claim a refund of additional TDS deducted while filing the income tax return.
No year is the same: Like everything in the national scenario, income tax laws too are amended regularly. Every year, the budget introduced adds or withdraws some benefits. If you attend to your tax scenarios in the last 2-3 weeks of the year, you often miss these changes, and blindly follow the investment pattern you have been practicing in the previous years. For instance, according to budget 2015, you can invest up to Rs. 50,000 in NPS under section 80CCD(1) in addition to the investment of up to Rs. 1,50,000 under section 80C. Also, your employer can give you further benefit of NPS under section 80CCD(2) up to 10% of your basic salary without any maximum cap on amount. So now you have many options to plan your retirement and save tax too. (We bet you didn’t know that, did you!!)
At year end, most employees focus on immediate goals like submitting investment proofs on time. It must be noted that as a result, they end up sacrificing returns or safety, or both, in a hurry. Hence, it becomes essential that you start planning your taxes in the beginning of financial year itself and create a full-fledged plan of action on where to invest, what to buy and which claims to declare.
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Sudhir Kaushik has been a practicing tax consultant for the last 17 years. He is a Fellow Chartered Accountant and conducts seminars in large companies to help salaried employees with income tax and investment queries. Sudhir brings domain knowledge of income tax laws and their compliance difficulties faced by individuals. He is the author of Income Tax Handbook For Salaried Employees for smart financial planning and investments for salaried people. He enjoys an excellent reputation and has a strong network in the corporate sector and public sector undertakings.
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