Young earners in the tax net look to channel their money in a direction that will help them cut down their tax outgo. Some tips that can make tax planning a simpler process.
As the financial year draws to a close in a few months, the tax planning season is upon us once again. As with each year, there are many young earners in the tax net looking to channel their money in a direction that will help them cut down their tax outgo.
Here are some options you can consider, along with other tips to make tax planning a seamless financial experience going forward.
The end-of-year flurry into tax saving instruments – sensible or otherwise – is hardly the most prudent way to go about the art of tax planning. Ideally, you should aim to start planning your taxes well in advance, if not the start of the year itself.
A monthly budget will help facilitate this, staggering your investments adequately so you aren’t left with potentially insufficient funds at the end of the year. It will also give you adequate time to consider and zero in on a tax saving instrument best suited to your needs.
Under the Income Tax Act, Section 80C allows you a deduction of up to Rs. 1,50,000 of your total income as an individual or a HUF. As a young earner, this should be considered strongly every year with monthly investments made in a product housed under this section.
Remember to account for contributions to the Employee Provident Fund from your salary, and calculate the remaining amount that you can invest. You can then make a choice between instruments such as the Public Provident Fund, Equity Linked Saving Schemes, or even Life Insurance. Out of these, ELSS Mutual Funds offer a relatively low lock-in period of 3 years and ride upon the market to potentially offer returns that surpass inflation and build wealth over the long term.
Even if your company offers Health Cover, you should look to purchase a dedicated cover for yourself and your parents. This falls under Section 80D of the Income Tax Act, and you should consider purchasing as high a cover as necessary with options to increase the sum assured each year.
The key takeaway is to start working on your taxes at the start of every new financial year versus taking last-minute financial decisions. With intelligent planning, you can avoid products you don’t need and likely save more money in the process.