It’s a fresh start to the financial year and for most of us last minute tax planning must have taken its toll. Some of us will be indifferent to it as every year, while some must have promised self to do better job in the next financial year. As I met some of my friends and asked them about how their tax planning went, few have opted for ULIP policies in March itself while some have invested lumpsum in ELSS funds and PPF to avail tax benefit. Few mentioned that they were bombarded with calls from companies offering investment cum insurance products and representative of one of such companies managed to convince them individually that this was the best tax saving instrument. ‘How does ULIP works or what is the track record of ELSS fund you have invested in?’ I asked. ‘Not sure’ each of them said but followed it with an argument that the advisor has promised it will give good returns few years down the line.
Problem here is not with ULIP, ELSS, PFF or any other tax saving instrument but as individuals, our total indifference to getting into the details of the product we are investing our hard earned money in. Its not just about tax saving – its also about this investment aligning with your long term goals. One reason to ill planned tax saving exercise is attributed to the fact that we plan to save taxes at the end of the financial year. This results in race against time to complete investments and more often not we end up investing in tax saving instruments which do more harm than good in the long term.
So this time around primise yourself to be deligent with your tax planing exercise.
First of all find out how much you need to invest under section 80C post your EPF deductions, home loan principal payment forecasted for next year (in case you have availed for home loan). For the remaining amount you can look at various options such as Sukanya Samriddhi Account ( for girl child), Public Provident Fund, Equity Linked Saving Scheme, life insurance premiums, 5 year bank Fixed Deposit to name a few. Freeze the investment plan for Section 80C for new financial year in April itself. For example, if you want to invest 60K under section 80C and want to opt for Equity Linked Saving Scheme (ELSS), start an SIP for 5000/- into ELSS scheme in April itself so that by March next year, 60K is staggered as an investment which provide you cost averaging and also save you for lump sum investments during end of financial year.
Do go through details of NPS and understand how it works. If NPS is something you want to opt for your retirement planning, open an NPS account and start investing in it monthly as you do in normal SIP.
Premium paid towards health insurance for self, family, parents also helps in tax savings. Reassess your cover now and plan in case you want to increase it. This activity is much more than just about saving taxes but one need to reassess one’s preparation against medical emergencies in case it arises in future.
If you are planning to avail exemption of Leave Travel Allowance, be mindful of keeping boarding pass and other travel receipts with you may need to submit to your employer to claim deduction whenever you avail it during the financial year.
Since income tax on medical reimbursement of up to 15,000 can be availed, it makes sense to keep in mind to keep medical bills organized so as to be submit it to employer in later half of the year to claim deductions.
We will have a separate write-up on which investment option suits you to claim tax deduction as well as prove to be a worthy investment in future. It always pays to plan in advance – this rule also applies when it comes to Tax Planning. Do share with us your tax planning exercise in case you have done your tax planning for new financial year. After all, it’s about doing worthy tax saving investments which will provide you rich financial dividends in future and not just save taxes for the year.
Happy Tax (Investment) Planning……