Tax Planning

When Should One Start Planning to Save Tax- The Beginning or End of the Year?

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Meet Mr. Late Latif who reaches office late, pays his bills late and delays all his chores just like his name. But when it comes to tax savings, Mr. Late Latif is facing troubles because he just checked the calendar and realised it’s March and he feared losing money in taxes.

Many salaried individuals tend to look at tax-saving investments only after February and their late Latif behaviour puts them in trouble.

But is it ok to have this attitude when it comes to tax planning? The answer is certainly No.

Tax planning at the end of the year is certainly not a good idea. There are many disadvantages if you plan your taxes late.

Here are some of them:

Borrowing for investing!

Sometimes people borrow money for these tax-saving investments. Such practices become counterproductive since the actual tax saved in almost all these situations will be much lower than the interest paid.

Charges are forgotten in the rush

Often, you might forget to check the kind of charges associated with tax-saving investments. For example, if an agent sold a tax-saving insurance product that carried a 30% charge in the first year then the loss for you could be Rs. 30,000!

Advantages of planning taxes at the start of the year

Easy on the wallet

Instead of making one big investment in February, it is better to make a series of 12 investments starting from the previous year itself. This gives you 2 benefits: one is rupee cost averaging and another is a lower outflow. Is it easier to make a one-time investment of Rs. 60,000 yearly or a monthly payment of Rs. 5000? You decide.

Products that match requirements

By planning your taxes in advance you get the time required to choose the product that matches your requirements. With competition increasing, companies are designing products that address unique needs. Today, we have financial products that are custom made for women, children, senior citizens, homemakers. The financial product list is huge and so making a choice will require sufficient time. When you start planning your taxes at the start of the year, you will be able to understand the products, how they work and whether they suit your needs.

Compare products across companies and categories

After identifying the product category, one needs to compare different products that are available in the market from different companies. This again requires time. Most companies in India today have products that have varying charges. There are also hybrid products like ULIPs that invest in both the debt and equities and also give you tax benefits. Again planning at the beginning of the year will give you enough time to analyze the products and make wise decisions.

We can say that tax planning done at the end of the year negates the very purpose of saving taxes. Hence, it’s prudent to plan your taxes when the fiscal year begins. This will help you make the best choices and get the best benefits.

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