Financial year 2020-21 will end in next week!
We are literally in a hurry to get our tax saving done, getting right proofs for it, meeting the deadline. With a background of COVID-19, where our incomes & cashflows are still getting back on track, planning for taxes is a task.
In a rush, we often take hasty decisions which may cause ill impact on our personal finance.
To avoid this, lets have a quick look on some important things to consider while planning your taxes in last minute..
- Don’t invest ‘just’ to save on taxes-
We have around 60-70 different tax deductions & exemption provisions to take benefit of in right way. Many new tax payers, invest in instruments like long term FDs or take life insurance policies to claim deduction on.
Well, before investing we must consider our goals, risk appetite & tenure and then move towards investing. On the other hand, ‘life insurance’ is for financial independence of our dependents when we are not alive.
So, please keep this in mind too while investing in any tax saving instrument and while taking life insurance policy.
Never mix ‘insurance’ & ‘investment’ just to save on taxes.
- Consider tax regime which you will follow for tax returns-
Budget 2020 introduced ‘additional’ tax regime i.e. known as ‘new tax regime’. One can choose between the two while filing for tax returns. If you have chosen a ‘new tax regime’, then it doesn’t consider deductions like Sec 80 C etc. so, while making tax saving investments, please consider this as well.
- Get all the proofs of tax saving instruments before time–
Many tax saving investments like ELSS have stipulation on the time of investment because NAV needs to be generated before cut off time & before 31st march. So, please don’t wait till last date so you can generate a/c statement well in time.
Tax payers who are salaried, will get their Form 16 and must have submitted all the proofs beforehand to their respective HR but for other tax payers, please consider the above.
- For some investments offering tax deductions look beyond ‘tax savings’-
Some sections like sec 80C offers tax deduction on all eligible tax saving instruments but the overall limit to claim deduction is Rs 1.50 lakhs.
Many people who have got almost all kind of eligible instruments under sec 80C in their kitty, try to reduce the amount of investment in them just because purpose of tax saving under that section is solved and limit is fully exhausted.
But we need to look beyond tax saving when it comes to some investments like Public provident fund. Such instruments are good for long term investments, tax effective returns, disciplined investment, safety.
If you have such investment instruments with you, please continue to invest in it.
- Consider other sections along with some popular ones-
Section 80C, Section 80D, etc are some known sections to every tax payer. But along with these, there are many sections and provisions which help us save on taxes in right way. For e.g
- section 80TTA & sec 80 TTB, offers tax deduction on interest on savings a/c,
- under sec 80D, if you are paying separate premiums for your family’s health insurance policy & for your parent health insurance policy, then you can claim deduction for these both within eligible limits.
So, kindly consider this while making tax savings.
- Capital gain tax is important to consider-
Some investments when redeemed after long time, are eligible for capital gain tax. So, in FY 202-21, if you have redeemed any of your long-term investment in debt mutual funds, or have sold any property after a long term, kindly consider the capital gain tax to be paid on the same. For long term property sale, one can invest the amount within permissible limit in 54EC capital gain tax bond, but check the eligibility for the same.
- Hire the services of professionals if needed-
If you have incurred multiple financial transactions like redemptions, losses from the business, etc, then its better to approach any expert chartered accountant for filing tax returns.
For planning your investments in tax effective and suitable way for you; you can approach a Certified financial planner who is offering unbiased financial advice.
‘Tax planning’ is little quirky, important process which needs active attention. Planning for taxes I effective way if our right and ‘filing tax return’ in right way on time regularly is our ‘duty’!
So, keep the above in mind while tax planning and say goodbye to FY 2020-21!