Skip to main content

5 points why Tax Planning in March is not a great idea



Yet again the time has come for all of us to invest to save taxes or by the next month we won’t be able to do so as new financial year will start. But, the question that keeps hanging over is, why do we need to wait for the last month to do savings for our Tax Planning. Why don’t we start this exercise in the beginning (April) only so that we are on track? What we fail to understand is that Tax Planning is a part Financial Planning and the investments we do in the name of Tax Saving should be aligned to our Long Term Financial Goals. And it is not possible to plan adequately if we wait till the end of financial year to invest for our tax savings. Let’s keep in mind these common mistakes which an investor might commit while doing tax saving in the month of March.
1.       Investing all money into Insurance Plans: Insurance by definition itself means insuring your risks. Investments in Insurance should be really done after careful evaluation as the returns will be lesser and commissions paid to the distributors are higher. And most of the time insurance products come with longer term periods of 15-20 years which might not fit into overall frame of your long-term goals as the returns are way much lesser if we have to beat inflation.
2.       Investing in 5-year Tax Saving FD: You might be a conservative investor but it doesn’t mean that you invest all your money into Fixed Deposit which in actual is giving negative real return if we consider inflation. Yes, you can invest in debt instruments, but you can choose PPF or even EPF which give better returns as of date in comparison to Fixed deposits.
3.       Not utilizing all benefits: Section 80 (C) is not the only section where you can save taxes. There are various sections under Income Tax Act wherein you can save taxes be it Section 24 or Section 80 D. If you are doing Tax planning in the end of financial year, you might not get time to utilize it to its maximum and hence will have to pay more.
4.    Putting Lump-sum in equities: You can invest in Equity Linked Savings Schemes (ELSS) of Mutual Funds to save taxes and they have a lock-in of 3 years. But, if you invest lump sum in the last month, you are not using equities in the right manner. Only God knows what will be the market levels, whether you are buying at right price or are paying more than the intrinsic value. It is true that nobody can time the market, but then we have SIP (Systemic Investment Plan) to counter such issues.
5.       Inappropriate Asset Allocation: When you do tax saving in panic mode, you often forget to have right asset allocation mix as per your risk appetite. There is tendency to go high either on debt or on equity side without having the right mix due to which the overall portfolio might not perform as per expectations.

Above All, biggest disadvantage of doing Tax Planning in the end is that it causes dealignment of your investments with regards to your Financial Goals. One should not forget that Financial Planning is a Bigger Picture and Tax Planning is just one part of it. And if every year we do our Tax Planning in a hurry, we are kind of making new puzzle every time rather than solving the real and bigger one.


Charu Hastir, CFPCM is founder of http://www.theriteplan.com/. Rite plan is an online financial planning portal created to achieve a single objective of providing easy and Do It Yourself Financial Planning to netizens. Rite Plan is wholly owned by Tikkun Olam Financial Planning Services LLP. Please visit: https://theriteplan.com/index.php?route=common/home/

Comments

  1. I appreciate your efforts which you have put into this article. This post provides a good idea about tax planing. Genuinely, it is a useful article to increase our knowledge. Thanks for sharing such articles here. Medicare Planning for Retirement

    ReplyDelete
  2. I am thankful to you for sharing this article here. It's a nice article, Which you have shared here . Your article is very informative and I really liked the way you expressed your views in this post. asset management

    ReplyDelete
  3. Extraordinary work, this is significant data that is shared by you. This subtleties is significant and furthermore truly pivotal for us to raise our insight about it. Continuously continue to share this kind of data. Much appreciated again for sharing it. plr ebooks

    ReplyDelete

Post a Comment

Popular posts from this blog

2018: 5 Money Lessons we need to unlearn

I. FD’s are the Best Investments Post Demonetisation Banks have reduced their deposit rates. Following which Fixed Deposits now are not an attractive debt investment option. Moreover, If you fall in 30% Tax Bracket then the return which you will earn from your FD will fall further. II. Time the Markets They Say, Time and Tide waits for none. Well, you can say the same for equity markets as well. So, don’t try to time the market, stay invested for the long term. *Sensex moved from 26595 to 34056 in the year 2017 III. Save only during Tax saving season As Benjamin Franklin rightly said, “You may delay, but time will not.” You should not save only in the Tax saving season, you should invest systematically with discipline at regular intervals. This way you can average out your returns. IV. Rely on your Company Health Insurance Most of us don’t take Personal Health Plan, thinking that our Company covers us. But have we ever thought of a scenario when we ar

What is Financial Planning?

What is Financial Planning? One of my friends came to my place for a cup of coffee and while chatting over how life is going, where is it heading, he told me that his elder daughter wishes to go abroad for her graduation. And when I asked him that how is he planning to fulfill her wish, he just laughed it off saying that her graduation is 10 years away, why should he get worried about it now. This attitude of his made me think about the importance of planning ahead of our financial goals and how many of us are conveniently ignoring this very fact. The Term Financial Planning defines itself as planning your finances well. It is a perfect marriage between your finances and your life goals. Efficiently managing your expenses and savings in order to achieve your future goals is nothing but Financial Planning. What are future goals? They differ from person to person. Some might want to take a luxurious trip abroad and some might wish for own home. But there are few goals which m

Union Budget and Your Financial Plan?

Honorable Financial Minister Piyush Goyal presented this year’s Interim Budget on 1 st February 2019. Every Year, on the day of the budget announcement, you can see almost every individual glued on to their Television or mobiles to check the budget updates with much excitement. Sometimes the Budget announcements cheer us and sometimes they make us sad as we think that there are not many benefits being offered for individuals in our tax slab. Budget is also referred as Annual Financial Statement as it contains an extensive account of the Government’s finances i.e. Government’s revenue and expenditure for the fiscal year. How relevant is this budget when it comes to our personal financial savings? Should we wait for the Budget to be announced and then start our investments or should we do our investments without any relevance to the Budget? Let’s discuss this in detail. Budget helps in Tax Planning Budget surely helps in planning the taxes for the next financial ye