Published On: Fri, May 5th, 2017

Why Should You Start Your Tax Planning NOW?

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My grandfather used to say, “Beta, make mistakes every time, but don’t make a mistake of making the same mistake again and again”.

Now when the wave of ‘tax planning and investment form submission’ is over, most of you are relaxed. After all, doing tax planning and that too last minute, is not an easy job! It only needs an expert like you and me to do such a brave act! (Of course, it is a sarcasm).

But wait, did you forget all the tensions and pain that you had to take because your accounts department asked for investment proofs but you did not have. What about those sleepless nights when you frantically searched for different tax-saving instruments to save your hard-earned income from the eyes of income tax official (of course, legitimately!).

Though, you made it to the deadline of the last financial year, why do you want to relive those moments? Why do you want to go through the same ordeal? It is good to start your investment planning with a new financial year instead of deferring it till the last time.

Now, you can ask, “why should I ‘block’ my money when I can easily spend it on other more important things, like shopping”? So, for your ‘mind makeover’, here are the reasons of why you should not postpone your tax planning:

tax plan

• Lower burden in the last quarter: It is that time of the year, when most of us get bonus or annual appraisal. Instead of spending it on frivolous things, channel the money into proper saving instruments. With savings, I am not taking away all your rights of splurging. In fact, spend some amount on yourself as after all it is the result of your hard work and commitment.

However, instead of spending the entire amount, invest a portion of it. If you have taken a home loan, pre-pay a portion of your loan to reduce your liability, or pay all your credit card dues and free yourself from the exorbitant penalty fees.

Then there are PPF, fixed deposits, tax-saving mutual funds, etc.; where you can easily invest your extra amount to reap more benefits. Also, if you haven’t bought any insurance policy, it is the right time to go for health insurance policy and term insurance followed by personal accident insurance policy.

• Money gets more time to grow: Time plays an indispensable role in a wealth creation process. Unfortunately, many people fail to understand this basic rule of wealth creation— start investing early to enjoy the compounding effect. The longer the tenure of your investment, more money you can accumulate due to the compounding effect.
Let’s look at the following table to understand the importance of starting investing early.

Parameters Rahul Varun
Amount to be invested 20,000 (annually) 25,000 (annually)
Invested For 20 years 10 years
Rate of returns 8% 8%
Amount to be received Rs 9.88 lakhs Rs 8.44 lakhs

Even when Varun is investing more than Rahul, he is getting lesser amount at the time of maturity.

• Cost and loss will be evenly distributed: If you are regularly investing in equity instruments like ULIPs, tax-free mutual fund investment, etc.; it would help you average the cost of your purchase. There is always a chance that one stays out of the market even when things are good or invests when the market is low. But when you regularly invest, you don’t need to ‘time’ your entry into the market and thus, you are protected from the ups and downs of the market.

• Tension-free investment without hurry: When one is stressed, mistakes are bound to happen. Just like a student who is trying to sprint his way to meet the examination deadline might forget or ignore the important chapters. When you plan ahead, you get a time to carefully analyse all the available options and choose the correct investment options as per your requirements.

• No delay in claiming tax refund: You might not get the tax benefits in the current financial year despite making the investment. It could happen due to delay in clearance of your investment cheque due to some technical glitches. In such a situation, your investment may happen post 31st March. Consequently, you would not get tax benefits.

So now when you know the reasons of doing tax planning much before the deadline, here are some of the best tax-saving instruments:

• Public Provident Fund: With a lock in period of 15 years, PPF is considered as one of the safest bets for those who are looking for fixed returns without taking too much risks. It enjoys EEE tax regime, i.e., there would be no tax on your investment, interest earned and maturity amount. Moreover, you can start your investment with an amount as small as Rs 500.

• Tax saving mutual funds (Equity Linked Saving Scheme): With a lock-in period of 3 years, such types of mutual funds suit to those who don’t mind staying invested for a longer duration. As per your risk appetite, you can invest in tax saving mutual funds and enjoy returns more than that of your fixed deposits, in some cases. Both the invested amount and the maturity amount are tax-free.

• Term Insurance: Secure the future of your family, even in your absence with a term insurance policy which will offer a lump-sum amount to your nominee in case of your death. There are some policies which cover disability as well and thus, make a payment if the policyholder suffers from any disability during the policy tenure. The premium of the policy along with its death/disability benefits are tax-free.

• Health Insurance: While, all the above factors will take care of your financial health, go with a health insurance policy to secure your physical health. As the medical cost is increasing at an unprecedented rate, one hospitalisation is enough to put your financial health at risk. So, buy a comprehensive health insurance policy to cover both hospitalisation and day care expenses. Moreover, premiums of a mediclaim policy are tax-free. Also, top-up and super top-up policies get the same tax benefits. If you buy health insurance policies for parents, you can avail tax benefits up to Rs 25,000, however, in case your parents are above 60 years, the tax benefit increases to Rs 30,000.

Besides the above, you can invest in National Pension Scheme, National Savings Certificate, Senior Citizen Saving Scheme, Unit-Linked Insurance Plan, etc.; and enjoy the dual benefits of wealth creation and tax benefits.

Take a note

While, I have discussed all the important tax-saving instruments that you should include in your portfolio from the start of the new financial year, it is time to look at other aspects also.

Make sure to prepare a budget which should not be like any other New Year resolution of quitting smoking which lasts only for a week. We do have special months, like Diwali, Christmas or vacation period which puts a lot of strain on our financial reserves. In normal months, save 40% of your monthly income and 20% in the case of special months. For saving, always follow the rule of Warren Buffett, who says, “Don’t save what is left after spending, but spend what is left after savings.”

Secure whatever is precious to you

Our life revolves around our family. We all dream of a great career, comfortable home, good lifestyle, and a peaceful retirement to justify all our hard work. However, natural disasters, manmade calamities, etc.; can easily shatter our dreams in the wink of an eye. So, it is necessary to take all the necessary steps to protect both ours and our loved one’s lives. As said above, take health insurance and term insurance policies, and supplement it with a personal accident cover which makes a payout if a policyholder has an accidental disability. Also, consider buying a home insurance policy to protect your home from perils, like earthquake, flood, cyclone, theft, burglary, etc.

Remember, your efforts will help in deciding how your life would be tomorrow. So, take every step now to make it beautiful and secure. And it can happen only if you plan. It’s simple like bringing the future into the present and then do something about it today. After all, the best way to predict your future is to create it.

About the Author

- Paul Linus is an eminent online journalist who has been writing news, features and editorials on different websites from across the world for about a decade. He can be contacted at

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