It’s not too late to make the RIGHT MOVE

View quick summary Waiting till the last minute to do your Tax Planning, can make you lose the Tax benefits you deserve. Here’s what you can still do.
Financial security is the end goal of every individual. With the ever changing economical conditions, ensuring stability is a major concern. Better tax planning can help you achieve this goal in a comprehensive manner. However, most of us still reserve the major investment decisions for the last moment. We work hard through the year to make money and harder to save it, but wait for the year-end to plan our taxes. This last minute tax planning does more harm than good, and you stand to lose some of your hard earned money by poor planning. Hasty decisions and wrong investment calls can lead to locking of your money into less beneficial or fruitless avenues. Tax planning in advance is the first step towards better financial management.
As per Tax Ratio Report 2013 by TaxSpanner, young generation may have great jobs and could be drawing handsome salaries, but it seems Gen Y is not very smart when it comes to money matters. Tax filing data shows that 25-30-year old taxpayers pay significantly higher tax than older taxpayers. The average minimum tax paid by 25-year-old taxpayers earning Rs. 10-11 lakh a year was 12%. However, 34-year-olds with the same income paid only 6%.
Can anything still be done to save the day?
The answer is YES. It’s an old saying that any decision made in a hurry is not a good one especially in the case of crucial financial decisions. Avoid these common mistakes while planning your taxes during the 11th hour and save your hard-earned money:
Investing without a goal: Tax planning is like planning a long awaited journey. When you plan to travel from one place to another, the first step is to fix the date of journey. Then, you choose an appropriate mode of transport, based on the time it will take and the price you are willing to pay. Tax planning is no different. You need to set your financial goals and then assess the investment options that match your needs. You need to be clear about what you want and then look at the options that will help you achieve it.
Overlooking your Options: Remember how you can never find your keys when running late! Or something kept right in front of you skips your notice. During the last minute tax saving rush, you too often overlook the choices before you that can get you more returns on your investments and greater tax benefits. For example, ELSS funds are a good way to save tax for someone who has a high risk appetite. However, if the taxpayer has woken up late and there is a time crunch, he may put his money in a low-yielding NSC or a bank fixed deposit. Senior citizens may be lured to invest in other options even though the senior citizen’s savings scheme gives them the most suitable tax benefits under section 80C.
The Insurance Lure: Most often than not, we end up investing in Insurance schemes considering them as a great investment. The last quarter of the financial year is the busiest time for the insurance industry. Insurance agents are known for using the panic among taxpayers to push policies that get them higher commissions. Taxpayers, in the hurry to exhaust their section 80C deduction limit of Rs. 1,00,000, don’t even look at the basic features of an insurance plan, leave alone the fine print. Moreover, agents sweet-talk you into buying a ULIP or an insurance policy that you may not even need. Therefore, it is critical for you to understand what a policy has to offer and the difference it will make to your investment portfolio. Take time to study the fine print before jumping in.
Not knowing tax rules: You cannot win a game without knowing its rules. The same scenario applies to your tax planning as well. You can only succeed if you are aware of the provisions in law that you can use to your benefit. Salaried individuals often mistake the proof submission deadline set by the employer as the last bell. In a hurry to avoid deduction of extra tax, they take random measures, without evaluating the effect of their actions on their finances. All you need to know is that the last date for making investment decisions is March 31. While this is not the best time to make investments, you should rather take a rational decision because the law allows you to claim a refund of additional TDS deducted while filing the income tax return.
No year is the same: Like everything in the national scenario, income tax laws too are amended regularly. Every year, the budget introduced adds or withdraws some benefits. If you attend to your tax scenarios in the last 2-3 weeks of the year, you often miss these changes, and blindly follow the investment pattern you have been practicing in the previous years. For instance, according to budget 2013, insurance policies with a risk cover of less than 10 times the annual premium will not be eligible for tax deduction. However, people continue to buy endowment plans and ULIPs. (We bet you didn’t know that, did you!!)
At year end, most employees focus on immediate goals like submitting investment proofs on time. It must be noted that as a result, they end up sacrificing returns or safety, or both, in a hurry. Hence, it becomes essential that you start planning your taxes in April and create a full-fledged plan of action on where to invest, what to buy and which claims to declare. TaxOptimizer service caters to this need by offering a dedicated chartered account as part of an annual subscription that includes optimization of your salary package, updates on tax saving options, ITR filing and premium support. For more details, write to tax.optimizer@taxspanner.com.