Financial Planning

Make your tax planning as merry as your Christmas

Posted Gopal Gidwani

Gifts! Receiving and giving them is one of the best things about the festive season. But if you are prone to procrastination, buying gifts can seem like a real chore. So, when Christmas does loom large, the panic levels start to rise. The worst part is that all the good gifts seem to be taken by then. As a result, you have to rummage through the scraps and pick up whatever is left. Same is the case with annual tax season. You are left with scraps if you don’t plan for the tax season early on. A last-minute dash can backfire as all the ‘good gifts’ are off the shelf.

Start tax planning early
Everyone knows that it is important to start the tax planning process well in time. But the real test is to actually get started. But, this could be easier if you knew the numerous benefits of early tax planning.

For one, it is possible to pay less tax. By planning ahead, you become aware of the numerous options there are in front of you.

An eleventh-hour decision to get an investment for tax-saving purposes may not be ideal. It may not help you meet your long-term financial goals. Therefore, you need to take time out to do some research first, zero in on an investment option that suits you the best and then act. Having time on your hand can help you do this. Else, you end up making rash financial decisions.

Invest to save taxes
There are a lot of investment vehicles out there that can help you save taxes. But there is no one best option. Also, you shouldn’t simply invest in a particular avenue to reap tax benefits. This could be a quick fix but it could come back to haunt you in the long run. Instead, it is ideal to identify your long-term investment goals. And based on this, you can invest in tax-saving avenues that help you reach your financial goals. Some of the investment options that offer tax deductions are equity linked saving scheme (ELSS), fixed deposits (FDs) and Public Provident Fund (PPF). All these options can help you save taxes, but ELSS has stolen a march over the others.

ELSS: The way to go
The reason for their increasing popularity is that they not only help you save taxes, they also have the potential to offer high returns. ELSS funds can provide higher returns than PPF, fixed deposits (FDs) and other tax-saving options because they are linked to equities.

You don’t need a lot of money to invest in ELSS. Systematic investment plans (SIPs) allow to invest them monthly or quarterly, which helps instil financial discipline. Further, SIPs allow you to invest with as little as Rs 500.

They also have the shortest lock-in period among all the other tax-saving funds. If you invest in PPF, the maturity period is of 15 years. It is five years if you put your money in National Saving Certificate (NSC) and unit linked insurance plans (ULIPs). With ELSS, the lock-in period is three years. This gives you a great deal of freedom to invest your money as you wish.

To sum up
As the festivities near, remember to do your gift shopping early. And as a gift to yourself, try and start your tax planning right away. The more time you have, the better it is!

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