“Old Habits Die Hard” this is something which I keep experiencing every year. When I was in school, all my friends used to disappear from any kind of games/pass times in the month of February and March as the exams were approaching soon. This was the case when we joined college, It was funny because I always believed in preparing for exams from the start of the year and give small but regular time to studies and avoid any last moment tensions and preparations. When I joined corporate world 6 yrs back, I found that last-minute preparations is not only true in case for exam preparations but adults do last-minute preparations for their tax calculations and investments :).
Why should we plan our Tax saving investments?
Main reason will be that tax planning will help you avoiding wrong selection of instrument at the last moment. You can preserve/maintain the prescribed asset allocation to meet your investment targets. You can manage your cash outflow in better manner by splitting the overall investment into small amounts to be invested on monthly/quarterly basis. Avoiding the notional loss accrued because of wrong timing (It has been noticed that market linked returns are better if invested in Oct-Dec quarter comparing to Jan –Mar quarter). One should avoid doing last-minute easily visible purchases like PPF, Tax saving FDs etc as they are not the best possible options to go for.
How to start planning Tax saving investments?
“First step for any journey is to know your destination” so first thing we need to know is that how much do you need to invest as per different sections of income tax. So once you know your taxable income, you can plan about how much should be invested to claim deductions. There are various sections under which we can save income tax, most common are listed below but one should check with tax consultant to look for exhaustive list of deductions one can claim:
Section 80 C – Upto INR 1,00,000
Section 80 CCF – Upto INR 20,000
Section 80D – Upto INR 35,000
Education Loan interest/ Home Loan Interest and Principal/ Contribution to charity foundations/ Amortization and usage of own vehicle/ Expenses due to certain permanent disabilities or illness are the few other sections to claim deductions. The best way to plan tax is to look beyond section 80C.
Investment Options for Aggressive risk taking investors:
We define aggressive risk taking investors as the person with high income and low responsibilities & short-term requirements. These persons can look for more equity exposure to make the most of the money they investing for tax savings. Some of the most prominent option to look for will be as in the given figure (All under Section 80C).
So do not wait for last moment and start planning now. Please visit the mentioned link for checking your tax liability for this year and see how much should you invest to minimize the tax liability (url: http://www.hdfcsec.com/Calculator/Taxplanning.aspx ). Feel free to write to us for any questions and queries for any of the products or deductions mentioned.
I really liked the connect between exams at school and financial management.
I have just started learning about finances. Would you write more about Tax saving FDs. How FDs, Tax saving FDs and FMPs are different from each others?
Thanks for the feedback Deep, Sure i will include that in the article next week. The basic difference here is Tax saving FDs have fixed maturity as well as fixed assured return, while in case of FMPs only the maturity is fixed and returns are expected as it is kind of MF which invest in Govt securities or Corporate deposits.