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- Why it’s time to start tax planning for 2022-23
Why it’s time to start tax planning for 2022-23
Did you find yourself in a mad rush looking for tax deduction at the end of March? If so, you are probably super-relieved that you don’t have to think about taxes for at least a few months now.
So then, why are we talking about taxes already? Well, as Confucius said - a man who does not plan long ahead will find trouble at his door.
This theory lends itself perfectly for tax planning. If you don’t plan your taxes when you have the time, you will be left scrambling at the last minute. And in the confusion, you may end up investing in a handful of unfavourable products.
This delay in tax planning could prove costly. Not only will it cause you tons of stress, but it may also lead you to miss good investment opportunities.
Keeping this in mind, we have rounded up some simple early-bird tips to help plan your investments and save on taxes in a cool and composed manner.
Start planning in April
Starting early is one of the best tax planning tips. The beginning of the financial year is the perfect time to assess your total annual income and estimate your taxes. Several tax planning tools are available to help you do this, or you can follow the advice of your financial planner. If you are a freelancer or a self-employed professional, you may not know the exact amount of your total income for the year. In this case, you can work with an estimated figure.
Plan your investment
dUse the time to research and shortlist tax-saving instruments you want to invest in. You can also decide how much you want to invest in each of them. When planning, remember to break up your investments into instalments. This will ensure you enjoy the benefit of rupee-cost averaging on your investments. Also look into the various tax-saving schemes and the total amount you can save with each of them.
For instance, Section 80C allows taxpayers a maximum deduction of ₹1,50,000 per annum from their total income. Let’s assume that, after contributing ₹4,500 to the Employee Provident Fund every month, a salaried person is left with ₹96,000 to invest in a financial year. He/she can start an SIP of ₹8,000 for 12 months in an Equity Linked Savings Scheme (ELSS).
ELSS is a great tax planning tool. It is an equity-oriented mutual fund that invests a minimum of 80% of the total corpus in equity and equity-related instruments. Investments in ELSS have a mandatory lock-in of 3 years and are eligible for deduction under Section 80C of the Income Tax Act.
Benefits of choosing an SIP for your ELSS:
Investment in a diversified basket of equities
Staggered investments take care of the highs and lows of the equity market
Equities offer good returns
Disciplined savings every month
Organise your investment portfolio
Fine tune your investments based on your financial health. For example, if you’re expecting a salary hike, you can increase your investments to balance the tax increase. If you have exhausted the deduction limits, look for alternate instruments you can invest in that will help you achieve your financial goals.
Unplanned and lumpsum investments earn returns too, but postponing tax planning for the end of the year may result in missed deadlines and suboptimal tax planning. Sound planning throughout the year help you avoid last-minute worries.
You can start investing in tax-savings instruments at the earliest and lower your own tax burden significantly. The first step would be to start investing in Mutual Funds through Investment Services Account with HDFC Bank. Just login through your NetBanking, go to the Mutual Funds options, click on request, and open Mutual Funds ISA Account.
Click here to open your ISA today!
Wondering how to invest during high inflation times? Click here to read more about it!
*Terms and conditions apply. This is an information communication from HDFC Bank and should not be considered as a suggestion for investment. Investments in securities market are subject to market risks, read all the related documents carefully before investing.