You must be heaving a sign of relief after making all the tax saving investments and submitting the tax proofs last month. You would probably deal with the tax saving exercise again during March 2018. For a change, why not start tax planning in the beginning of this financial year. Do not make it a routine exercise of making some random investment in order to avail tax benefits under certain sections. Tax saving requires strategic planning depending upon your financial situation and should ideally start from April 1 of the new financial year. The benefits of an early start are manifold. Let us understand them:
Putting money to productive use early on: Instead of waiting till the end of the year to invest, you can start investments in a phased manner in April itself. The start of a financial year is also an appraisal time for most salaried employees. The additional money in your pocket runs the risk of staying idle or being entirely spent. Instead, you can choose to put your money to work for you and channelise a portion of the incremental income into suitable tax friendly investments. Your money has more time to grow during the year and in the process, your tax planning is also taken care of.
In sync with financial goals: When you are strapped for time, chances are you will make investment decisions in a haphazard manner. You end up buying tax friendly products which you do not really need and this seriously affects long term finances. The right approach to tax planning is considering financial planning as the starting point. When you start early on, you get time to review your financial goals and accordingly determine your investment portfolio. You have sufficient time on hand to plan your investments which are in sync with your financial goals. This takes care of your tax planning too. Remember, tax planning is incidental to investment planning.
Adequate time for due-diligence: It is not easy on the mind to think rationally when you have a deadline to meet. Many times, people block a huge amount of money for the long term just to save paltry amounts of tax. Further, many are focussed just on section 80C and forget to consider other options to save on tax. Many people do not know that they can make investments through their family (spouse, grown-up children & dependant parents) & legally reduce their tax liability. Consequently, they fail to make optimal use of the tax benefits available. Starting early can provide you adequate time for due-diligence to evaluate your investments and tax saving options. You can also gauge your short & long term liquidity requirement and plan your investments in a phased manner during the financial year.
Easy on the pocket: Due to lack of planning, hefty taxes usually eat into the salary towards the end of a financial year to meet the annual tax obligations. Most people are forced to cough up a huge lumpsum for tax saving investments to avoid tax cut at the nth hour. Proper tax planning through investments done in a phased manner is easy on the pocket. It also does not affect immediate goals and one does not have to compromise on liquidity.
No hassle to claim refund: Many individuals fail to invest before the due date and end up paying huge taxes. They invest later and then go through the process of claiming refund while filing their tax returns in July. Early tax planning can help people avoid this hassle.
To conclude, last minute tax planning is often a compromise and does little to further your financial goals. Tax planning is not something you do last minute, it is something you start from April 1 of the new financial year and build on it. An early start can help to avoid financial mistakes and save you a lot of money. You not only save on tax but make investments which are best suited to your financial goals.