After accomplishing the task of successfully submitting the investment proofs for the Financial Year 2015-16, have you put tax-saving investments on the back-burner until the next email comes from your employer asking for proofs again in the month of January?
Well, we would recommend you to look at a different strategy – a kind of resolve for the new financial year of 2016-17. Instead of planning your tax-saving investments towards the fag end of the financial year, start right now in April at the start of the financial year. As they say, early bird catches the worm, we say the early saver builds more wealth.
Now, you would question why should I block my money for the whole year when I can postpone it till the last quarter of the year. We have five strong reasons to talk you out of the habit of last-minute tax-planning.
Reduced burden in last quarter
The start of the year is when you have just received a raise in income and you are still planning what would you do with the additional amount you would pocket. Instead of planning ways to spend it on luxuries of life, channel them into savings. This could be by way of increasing your home loan EMI to help you reduce the loan burden and even seek the entire loan tax benefit. You can invest it in PPF in a staggered way now that the convenience of online payments is available. New Pension scheme, Sukanya Samriddhi, Insurance or tax-saving mutual funds are other options to divert the additional income for the new year. This would reduce the burden of high savings that you face toward the end of the financial year, when hefty taxes eat into your salary to meet the yearly taxation limits.
Money has more time to grow
You would earn the interest for a longer time period and the power of compounding would come into play. For instance, under PPF interest is credited on the deposits invested before 5th of each month. Earlier you invest, more you see in your account at the time of maturity, if you are considering traditional fixed income investment options.
Purchase amount averaged out
If you are the one who opts for equity investments such as tax-saving mutual funds or unit-linked insurance plans, then investing regularly at different intervals during the year would help you average the cost of purchase. So, if you keep investing Rs 5000 each month, then some months you would invest at lower market levels, while others at higher levels. You would be thus protected from investing money all at one go, when the markets may be high, thus reducing the overall benefit.
No hassel, time to analyse
When one is stressed for time, mistakes are bound to happen. Just like a housewife who is trying to sprint her way to meet dinner time is highly vulnerable to knife cuts than someone who has prepared in advance.
When you plan in advance, you have time at hand to analyse the available options, weave tax-saving investments with your overall-financial plan and allocate funds over the year. You would be able to assess whether you have already exhausted the Section 80 C limit, analyse the instrument per se, the anticipated growth rates and the taxability at maturity. Timely investment proofs too would be in your file well in advance of the accounts department email asking you to submit them.
No delay in claiming benefits
Several individuals fail to either invest before the due date or fail to submit proofs. They do invest at the last minute. Thus they end up coughing up high taxes during the last quarter and later have to claim an income tax refund. Such investors would not be able to earn additional investment income out of such amount to be claimed as refunds.
Hope these are convincing enough to get you into tax-saving mode at the start of the financial year. So, be at peace to plan for your spring summer vacation as the savings would be on automatic-mode with prior planning at the start of the financial year.