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It's April, folks! Start tax saving right away

To get full benefit of tax saving, make all investments in next 10 months and complete the process by January to avoid unpleasant shocks

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Last year you did some last-minute heavy lifting to get tax deductions. Many begged, and some even borrowed money to do tax-saving investments just before March 31. But 2019-20 financial year that began from April is a fresh start. Your target of being eligible for up to Rs 1.5 lakh deduction by using Section 80C means you need to save and invest that same amount of money. It may look a lot of money, but if you divide it into 12 months, its all about Rs 12,500.

Despite knowing the benefits of being an early-bird, taxpayers do not save all throughout the year. Everything is left for the last minute, and this is where decisions are taken that are not good, say financial planners and experts. This financial year start tax-saving from April and heave a big sigh of relief when it peak tax-saving season. Read on.

10 months = 12 months

For the average employee, tax planning and execution needs to be done in 10 months. Here is why. In April, the company HR sends an email asking you to submit your proposed investments for the financial year. By December-end or mid-January, you are again supposed to send a final investment list along with documentary proof. If you do not submit all documents by January, your salary starts witnessing tax shock from February. "If you gave all the full financial year documents by January first week, the company HR would update it and if you used all the tax-saving avenues properly, your income would not be touched. In fact, your income might even go up," Santosh Nair, a senior accounts professional. In February and March, Santosh was in deep trouble after Rs 28,000 was cut from his salary in the form of Tax Deducted at Source (TDS).

Plan it, do it

Tax-saving avenues are known before-hand. Section 80C gives us an opportunity to lower our taxable income by Rs 1.5 lakh. Buy medical insurance and claim a deduction up to Rs 25,000 (Rs 50,000 for senior citizens) for medical insurance premium under Section 80D. You can claim additional deduction up to Rs 50,000 on home loan interest under Section 80EE, if you are first-time home buyer. An additional deduction for investment up to Rs 50,000 in National Pension System (Tier I account) is available under subsection 80CCD (1B). This is over and above the deduction of Rs 1.5 lakh available under section 80C of the Income Tax Act.

So, why should one wait till the year-end? Smart investors are using routes like mutual fund Systematic Investment Plan (SIP), auto debit of the insurance premium and Public Provident Fund, or manually making payments. It is important that taxpayers start tax-planning from April or May. The amount of taxes they save can be used for something else. Many argue that even if TDS is deducted it will come back, but that may not happen before two to three months. It pays to be early," says Nilesh Sathe, a Nagpur-based financial planner.

No incentive to delay

Those taxpayers who delay, do not realise that they have everything to lose and nothing to gain from such behaviour. By doing everything last minute, they expose their monthly finances to temporary shocks. The worst outcome of delay is that investments hurriedly made in February and March are usually done only to save tax and may not be the suitable for you.

"For example, investing in Equity Linked Savings Scheme (ELSS) or Unit Linked Insurance Plans (ULIPs) at the fag end of the financial year means that it will be a lump sum investment. A market crash soon can wipe off 10-15% of investment, at least temporarily. This is not a good investing experience. Next year, the same investor goes back to bank fixed deposits with tax saving or PPF. By repeating the tax saving from early in the year, you do not need last-minute quick fixes to save tax," says Soumen Roy, a banker who has been filing his taxes on his own for the past 13-14 years.

Money not saved is spent

A major problem with respect to tax saving is that if you don't save the tax money, it gets spent. The festival season starts across India from September/October. There are trips and vacations. Also, many employees do not have the habit of assessing their tax liability for the year. They work on the assumption that tax dues will be like last year even though they have get a 10-20% raise this year. A salary hike means income rise and naturally, higher tax.

While TDS deductions help soften that blow of a higher income and higher tax, it is often not enough. Plus, if you keep spending money you will be left with no money.

"I have seen some of my clients wasting their bonus money. After taxes returns are filed, some have had to break a small bank FDs to pay additional tax dues. By holding on the consumption for a few more months, they can really help themselves. So, I am all for tax planning throughout the year. It makes the lives of tax file preparers like me a lot better," quips Naresh Gupta, a tax consultant.

EARLY BIRD IS SPARED THE TDS

  • Do tax saving investments and submit proof to your company's HR by January, to ensure that TDS is not cut
     
  • Use SIP for mutual funds, auto debit for insurance premium and PPF right from April or May
     
  • Those who delay may end up spending the money and then may have to borrow to do their tax-saving investments at the last minute
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