Now taxing moments

Even as new year mood is still around, it is the time of the beginning of taxing moments for most of you as last quarter of the financial year ending March 2018 is now underway. This is the time when salaried as well as business class get into the act of calculating their income tax burden. At the same time they look for appropriate tax rebate options to loosen the tax net. 

This is also the time when people anxiously wait for budget with a hope to see more concessions in their way. Basically, over a period of time focus of common man on budget has remained more tilted towards tax matters than to track movement of prices of essential commodities, electronic gadgets, fast-moving consumer goods (FMCGs) and other essential things.

So, this tax season actually means some maddening moments for those who fall in the income tax bracket. However, those falling in the tax net need to gear up to make these maddening moments a very sane one. This means, people should look for appropriate tax saving avenues. Let me reiterate, there are certain things in which government wants its citizens to invest for their own good and for the welfare of the nation. So to encourage people to invest their money in the “these certain things” the government grants income tax exemption. However, the key is to understand how tax-saving investments could fit into ones finances and adopt approaches that will help to choose the right tax-saving investments. So the basic thing in axing the tax is choosing the right kind of tax saving investment option. If one invests part of his income into government bonds, infrastructure bonds, life insurance, bank fixed deposits etc. then ones income will reduce. This means he has to pay less income tax.

The investment in these tax saving things does not just go away. One is actually creating an asset that produces money. So, instead of losing the earning power of the money by paying income tax, one could use the money to create an asset and also save tax.

Pertinently, efficient tax-saving planning is entirely dependent on quality financial planning. This financial planning is all about managing money. And the best tool to manage your money to bring financial convenience to you is to prepare a budget.

Needless to mention, budgeting lies at the foundation of every financial plan. It’s about understanding how much money you have, where it goes, and then simultaneously planning how to best allocate those funds to realize different goals. Creating a budget always looks just a tedious financial exercise, that too when you feel your finances are already in proper order. But you might be surprised at just how valuable a budget can be. A budget helps you to keep your spending on track. Don’t be surprised to see some hidden cash flow problems uncovered that might free up even more money to put toward your other financial goals.

One should just ask himself a few questions. Am I living beyond my means? Am I earning well but still don’t seem to be saving enough? Have I ever thought of how to save most of the money I earn? 

Meanwhile, negotiating tax matters at this juncture is the time when most of us rush for investing in tax saving instruments. We have a bad habit of deferring our tax saving investments till the last quarter of the financial year. This way, most of the time, we end up investing casually without aligning tax saving investments to our benefit. We invest in instruments which might not help us create wealth in the long-term.

So, what is the best time for tax saving planning? Let me  reproduce ClearTax report, which says the best time to start planning tax-saving investments would be the beginning of a financial year.  The reports suggests: “Instead, if you plan at the start of the year, you can make investments that can also help you fulfill your long-term goals. Tax-saving investments should be used to build wealth as well, not only to just save tax.”

Lastly, three basic things need to be taken into account while planning tax saving. Firstly, check the  tax-saving expenses that you are already making that you can claim. This includes expenses like insurance premium, children’s tuition fees, etc.

Secondly, deduct this amount from threshold limit to work out how much you need to invest. The entire amount doesn’t need to be invested if expenses are covering it. Lastly, choose tax-saving investment scheme matching your financial goals goals.

(The views are of the author & not the institution he works for)

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