- Date : 27/02/2023
- Read: 4 mins
Reducing income tax is something everyone strives towards. However, only some get it right. Your chances of hitting sustainability will increase with proper financial planning.
Make Tax-saving A Part Of Your Overall Investment Plan
Everyone looks for ways to save their income tax and plan their investments better. However, not everyone can execute it in the best possible ways. Tax saving should always be seen as a cohesive endeavor and more as the constituent of an overall investment plan.
That’s because keeping methods sustainable and practical will serve you best in the long run. Let’s look at why and how saving tax can become a part of the larger financial equation in people’s lives.
A Purposeful Vs. Purposeless Investment Portfolio
Many people make multiple investments for saving taxes. However, a statistically significant proportion of these investments are passive. This means that most things bought or invested to save on income tax aren’t made purposefully.
This leads to passive investments that will likely amount to nothing in the long run, not because these can’t yield but more because of the investor's lack of interest and expertise. In these cases, tax planning can help you understand where your money is invested.
An uncluttered investment portfolio can lead to the multiplication of assets while saving income tax simultaneously. So, exploring all the different tax saving options is excellent, but being equally careful about the investment front is what’s needed currently.
Also Read: Your Source For Mutual Fund Tax Information
4 tips for better tax planning
Here are some proven ways to save taxes, but remember to execute what applies to your situation and what’s suitable in the long run.
Investment in medical insurance
Medical insurance is essential for most of us and is a well-known tax-saving route. The maximum permissible deduction is Rs. 1,00,000, including Rs. 50,000 for senior citizen parents. The income tax act details these provisions under section 80.
Tax planning through loans
Loan interests can help in tax saving. For people who want to take a home loan, students who are planning to take an education loan, and for some other categories, loan interests come with certain tax benefits. You should never take loans solely to save taxes and avoid trouble.
If your long-term financial planning involves some kind of loan for asset creation or some other worthy cause, you can declare the same for saving income tax and enjoying the benefits. Loans can be a part of your overall financial plans and not a short-term measure to escape tax.
Also Read: Index Universal Life Insurance
Start thinking about tax saving in the first quarter
Most people put no effort towards saving taxes until the end of the year. This leads to rash and hurried decisions which may not align with their long-term interests. You can prioritize tax planning in the first quarter to avoid this situation.
Look for tax-saving expenditures you already have or need. Since Rs. 1.5 lakhs is the investment limit one needs to hit to avail reductions in their income tax tally; deducting the existing tax-saving expenses helps.
Doing this small exercise will give you the best idea of how much you’ll need to invest, thus leading to more sensible and active investment decisions. Another way to ensure high-yielding investments is to spread them throughout the year to avoid piling.
Beware of risk levels while making an investment
It’s important to understand that investments cannot be jumped into for the sake of lowering income tax. There are risks associated with certain investments. So, being aware of them and weighing all the options available at one’s disposal is wise.
Apart from these options, fixed deposits and tax-saving funds like ELSS mutual funds can also work. Make an informed decision based on all the pointers we’ve detailed here.
Tax saving is essential for everyone, but the right planning methods need to be equally emphasized. Keeping the approaches practical and feasible should be the topmost priority for all taxpayers.
Investment plans should be the primary goal, and tax-saving methods you follow should align with them and never contradict them. Adopting these practices can help you figure out a more sustainable tax-saving routine that you can stick to in the long run.