Plan early for efficient tax savings
Most taxpayers wake up only in the last quarter of the financial year to explore ways and means of reducing tax outgo. This is the period you as a taxpayer should in fact be utilising for assessing if the tax saving has happened as per plan.
The tax saving declaration given to your employer at the beginning of the year for many is just a tactic to ensure less amount is deducted towards income tax, in the hope that the declared investments will happen. If you are not able to make the investments as declared, you end up having lesser salary in hand in February and March.
Ideal Way to Save Tax
The ideal way of saving tax is to start planning at the beginning of the year. By May or June, you should be ready with an investment plan that optimises tax saving. Starting early, also gives you a window of 9 to 10 months to spread out the investments required.
The tax deducted from your salary is for the income you earn for the year, after adjusting for investment and expenses declaration made for lessening the tax burden. Employees generally give a declaration without much thought. Often, the declaration is given without assessing the savings potential and the savings requirement for saving tax to the maximum.
The tendency of leaving tax saving investments to the last quarter of a financial year invariably results in investment decisions that are arbitrary or indiscriminate. There is no thought given to your future financial needs and which products are better suited depending on your risk-taking appetite.
Avoid Bunching of Investments
Starting tax saving investments at the beginning of the year should be the rule. This will also prevent crowding of investments in the last couple of months of a financial year. If you take a health insurance policy in the last quarter of a financial year, the subsequent annual premium due dates will fall due during the same period every year.
However, if you continue to wake up only in the last quarter for tax saving investments, you will end up having to face bunched up investment outgo. Not planning for tax saving early, only aggravates inadequate and indiscriminate investment decisions.
Tax Planning and Efficient Savings
Drawing up a tax plan helps in having a better financial planning for you and your family. It also helps in efficient investment decisions, which are linked to your future financial needs and risk profile. A disciplined tax planning leads to efficient investment decisions, which in turn translates into efficiency in savings and minimising tax outgo to the maximum possible. Starting early will give you a big advantage in tax planning.
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