Tax Planning

Why Tax Planning Should Be Done Throughout the Year?

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Once your income reaches beyond a particular level, the tax monster begins to haunt you. As years pass by, you tend to rush with tax planning at the end of the financial year. The last quarter of the year is where quite a number of tax saving instruments are talked about to help you reduce your tax burdens.

While tax saving is a wise decision, a well planned and safer method of tax planning would be making it an all round-the-year rather than just a year-end affair. Below is how you can benefit by doing your taxes round-the-year:

Tax-investments can be synchronized with your income

If you are a salaried individual, your salary would get credited each month. To get maximum benefits under Section 80C and Section 80D, you may want to discuss and evaluate appropriate plans. If you are rushing to save for tax at the end of the financial year, you may end up making a bad investment choice.

No delay in investment proofs

When it comes to submitting investment proofs, February is the cut-off date for most organizations. Tax saving investment proofs will not be considered by the finance department of your company after the first week of February. The investment proofs submitted by you will decide the amount of income tax that has to be deducted. As a result, you end up paying more tax. Poor tax planning means you incur an opportunity cost. As you wait for your income tax refund for months, you would realize that the same amount could have been invested in a better avenue.

Rupee Cost Averaging (RCA) and long term investment planning

If you set aside a portion of your monthly income for tax planning, you could benefit from the rupee cost averaging. This way you will be able to manage the fluctuations and also reduce your average cost of acquisition. Most equity-linked tax saving plans witnesses a change in their net asset value through the year. If you rush towards the end of the financial year, you may miss out on finding out about the net asset value of the plans. If the market price is low, it helps you. However, if the market price is high, you may end up investing your lump sum money at a higher price. Investing regularly for tax-saving helps you deal with market fluctuations in a better manner. Your financial planning involves regular long term goals like retirement funds, children’s education, buying home. Investing for long-term goals and tax planning can be done simultaneously by opting for long term tax saving plans, like ULIPs. Investing in tax-saving instruments comes with a lock-in period of at least five years. This leads to systematic and disciplined form of investment.

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