The maiden Budget of the new government brought a lot of cheer to the common man. It delivered twin benefits: Deduction limit for investments under Section 80C was increased from Rs 1 lakh to Rs 1.5 lakh, and no tax for income up to Rs 2.5 lakh for all and up to Rs 3 lakh for senior citizens. We are in the middle of a new financial year — a time when most of us ought to consider tax-saving investments.
Some of us rush at the 11th hour and start looking for such investments in the last few months of the financial year, sometimes as late as March. This, however, is merely a 'tax-saving' exercise and is not 'tax planning'.
What is tax planning? Tax planning is all about planning in advance, which involves evaluating your overall tax strategy and implementing it before the year end. This way, you can make the most of the tax-saving opportunities that can help you accumulate wealth over the long term. Tax planning is an essential part of financial planning and you should devote enough time and effort for the same. Investments in tax-saving instruments should command the same well-researched and careful approach that other investments do. After all, it is your hard-earned money. The best time to start thinking about tax planning is now when you still have more than six months left in the current fiscal. Starting early will give you ample time to have a plan in place, research the best taxsaving instruments and allocate resources between them in alignment with your financial goals.
Importance of starting early The advantages of starting early in the year include having the leeway to make better choices and right investment decisions, save tax more efficiently, capitalize on investment returns, a chance to avoid last-minute paper work and mistakes, and avoid a situation where you end up having not enough money to spare for a lump sum investment.
The best approach to tax planning is to invest throughout the year in stages so that, by the end of the year, you have taken advantage of most of the tax-saving opportunities. Also, if you invest throughout the year in a staggered manner, you could avoid any liquidity pressure at the end of the year.
Learn about Section 80C Section 80C of the Income Tax Act, 1961 provides that investors (individuals & HUFs) will be able to claim a deduction of up to Rs 1.5 lakh per annum from their taxable income if they invest in eligible investments like Public Provident Fund (PPF), National Savings Certificate (NSC) and equity-linked savings schemes (ELSS). The table Section 80C: Options Galore given here gives a snapshot of these instruments, the lock-in period for each and their tax treatment.