We often make the mistake of investing at the last hour when our company asks for proof. Don’t delay it, start tax planning now. Early tax planning will also ensure that you fully acknowledge and understand your financial situation, which can help you plan for the future in more ways than just tax preparation.
Start in April
Why should you wait for the end of the year to invest in tax saving investments? April is the best time to start investments. Delayed tax planning could make you invest a large sum in March. You might end up not investing in financial instruments as per your goals. So don’t leave your tax planning for the last minute.
Understand Tax Changes & Deductions
By April, the Union Budget would have been announced. This means you have a good idea about any tax changes, exceptions and deductions etc in the new financial year.
Estimate Your Taxes
You also know about your salary hikes and tentative incomes by the start of your financial year. This is enough to calculate your tax payments too.
Spread Out Investments
Section 80C offers taxpayers a ceiling of ₹1.5 lakh for claiming tax benefits. This number – ₹1.5 lakh 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 tax-saving mutual funds (ELSS), EPF, PPF, among others.
If you invest at the end of the year, you will have to shell out ₹1.5 lakh or more in a single lump sum payment. By planning earlier, you can avoid this
Systematic Investment Plan (SIP)
Equity Linked Savings Schemes (ELSS) are special Mutual Funds for saving tax. You can start SIP in ELSS right in April. This spreads out your investments. By investing every month, you can also benefit from the volatility in the stock markets. You can lower your average cost of investment by investing every month.
By lowering your average cost of investment, you can increase your overall returns in the long run. This way, your tax-related investments can help create more wealth.