Most individuals begin tax planning when the due date for filing income tax return is around the corner. However, it is prudent to start your tax planning earlier as it gives you more time to make a good estimate of your income and gains.
One easy way to calculate your tax liability is to print the previous year’s return and write your estimate of current year’s numbers. This can be a ballpark estimate, and once you write the new numbers, you can use them to estimate your taxable income and then determine what tax bracket your income falls into.
For instance, if your last year’s taxable income was `7 lakh and you are estimating 15% growth in your net income this year, then your taxable income will also increase in similar proportion. Calculating your tax liability early in the financial year will enable you to know how much you need to invest to save tax.
Plan your investments
To reduce your tax liability, you can take advantage of various tax deductions and exemptions. For instance, if your taxable income is expected to be `8 lakh at the end of the financial year, then you can start investing in tax-saving investments.
From a tax planning standpoint, there are several tax-saving options offering deductions under Section 80C, Section 80D, etc. Additionally, expenses such as interest paid on home loan, repayment of the principal amount of a home loan, tuition fees for children can be claimed as deduction from gross taxable income thereby reducing your tax liability. You can take advantage of Section 80C by investing in ELSS, PPF, NSC, etc.
However, the most efficient way to take advantage of this section is to invest in term insurance and Unit-linked insurance plans (Ulips). They offer tax benefits under Section 80C for premiums paid in the given financial year. But, most importantly, the returns and the maturity benefits that you receive are completely tax-free under section 10 (10D) of I-T Act.
Remember that early planning of investments will give you more time to select the most efficient option which can give you higher returns, more liquidity, and most importantly, will help you to accomplish your goals in a better way.
For a smooth tax filing process, all your tax-related documents ought to be kept securely. If you are spending on things for which you can claim deductions such as medical bills and travel bills, keep receipts of all such transactions handy. This won’t just accelerate your filing process, yet additionally, diminish the odds of missed details and errors.
File ITR well in advance
To avoid any mistakes, it is best to file your income tax returns well before the due date as any mistake might result in a notice from the I-T department. Moreover, procrastinating tax-filing till the last minute could also create problems, especially in case of transactional glitches or technical errors.
Therefore, file your tax in advance and be prepared with all relevant documents such as salary slips, eligible deductions, and investment documents to ensure a smooth filing process. Early tax planning early will allow you to think better and make wise decisions with respect to investments. Remember, choosing the right tax-saving investments can not only help you reduce your tax liability but also meet your set financial goals.