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Why should you save taxes all year long?

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SIPs work just as efficiently in a tax-saving ELSS scheme. 

Imagine the scenario. It’s January and you’re rushing around to figure out how to save tax. And just like last year, you’ve decided to invest in a tax-saving ELSS scheme. 

There’s absolutely no reason for you to be paying taxes as per the slab your income falls into. Thanks to the government’s own regulations and laws, you actually have plenty of opportunities to save on your taxes, lawfully. Unfortunately, most people don’t really use this to their advantage as they should. Which is why we’re here with a guide. 

How can you save on taxes?

There is no single way to entirely save your taxes until and unless you earn below 2.5 Lakhs annually, or you belong to specific income grounds which are exempt from taxes — like agricultural income. Sections 80C, 80CCC and 80CCD of the Income Tax Act provide plenty of opportunities to avail annual deductions via investments in mutual funds, provident funds, equity and loans, etc. 

It is also possible to claim tax deductions against your health insurance premiums. Furthermore, if you are involved in philanthropic activities, you can also claim returns against donations to research, rural development, political parties, government relief funds, etc. 

Why should you save on taxes consistently instead of all at once?

The best way to start planning your tax-saving investments is the start of the financial year. Most taxpayers procrastinate it till the last few months of the year and end up taking hurried decisions. Besides, if you start planning early, you can save your taxes as well as fulfill your long-term goals. Let us look at the benefits of planning early. 

1. The right tax saving product

  • Tax planning should be complemented with investment planning. The target shouldn’t be just reducing taxes, but also helping your long-term goals
  • If you’re in the early stages of your career, or even if your income is in the higher brackets, it is acceptable to take risks. When we open ourselves to risks, the first destination is usually the stock market
  • These products are considered risky because they have an equity component which is subject to market risks. It is vital to assess the equity allocations before investing
  • Conservative investors can look for options like fixed income deposits. Although they are not as liquid as other forms of investment, but they ensure long-term returns. Allocate your investments based on your risk appetite

2. Regular Investing

When planning taxes, investing on a regular basis avoids the outflow of a large amount of money at the end of the financial year. When investing in mutual funds, it is advisable to invest in a phased manner rather than in a lump sum. These are somewhat volatile investments that are best cost-averaged with a SIP. 

3. Optimising the options

  • When you have time, you have a broader range of options to consider
  • Else when the deadline approaches, people prefer going for whatever they come across first
  • This keeps you away from the opportunity of saving the maximum possible amount of your money

Planning early will help you look at all deductions available to boost your tax savings.

When is the tax time? The last quarter of the year. 

4. Get prepared for the outflow 

If you’re a paid employee, many organisations deduct tax in the last quarter of the year. After all the accounting is done, if there’s tax payable, then the organisations deducts it from your income. Naturally it is important for you to plan for the amount that you are going to lose, as well as to make sure to minimize it with deductions. 

Preparing early for tax payments is clearly far more beneficial for a taxpayer. Last minute preparations can turn out to be catastrophic, as a lack of tax planning may not only lead to mediocre investments but also inefficient returns. 

Apart from investing regularly, you need to select the right assets as well. Remember to evaluate your portfolio, and the track records of your investments. All this can be time intensive, but is essential to maximise your wealth. Save taxes all year long, and not just in a last ditch attempt every February! You can invest in  ELSS and other Mutual Funds on the MobiKwik app or the MobiKwik Mutual Funds website for no fee and no commissions now.

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