Tax Planning 2017-18: Be an Early Bird

Written on Friday, March 10, 2017
By Amit Chauhan - Senior Manager - Corporate Communications, Bajaj Capital

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Most of the people in India plan their taxes in rush and because of this, they invest in those tax-saving instruments which may not suit their investment portfolios. Generally, the most affected group of last minute tax planning is the salaried class. Although, they do get tax deductions from employer, but in a hurry, they invest in those tax saving investment tools, which serve no purpose in helping them in their long-term financial goal.


Benefits of Early Tax Planning:

Income Tax incidence on an individual can be reduced if tax planning is done on time.

The sooner you start investing to save tax, the quicker your investment starts earning returns on it.

With proper tax planning strategy, you will be able to utilize most of the tax benefits available under various sections.


Link Tax Planning with Financial Goals:

Tax saving should be treated as a by-product. Your every investment done for tax saving or for any other purpose should be linked with your long term financial goals.

When is the right time to Plan Tax?

The best time to plan taxes is the beginning of every financial year i.e. from April. With this, not only, you can streamline your investment in the best possible manner, but at the same time also get time to choose them wisely based on your needs.



Step 1: Income Level Check:

Every year Government of India announces Budget and sometimes we common man are fortunate enough to get some relief based on the announcements. Based on Budget Announcements on Direct Taxes made by India for 2017-18, one should check his income level (as per the tax slab 2017-18). If you are below 60 years and earning below Rs. 2.5 lacs, then you need not pay any taxes, so there is no need for tax planning. However, if your income for the financial year (2017-18) exceeds Rs. 2.5 lacs  then you have to think about tax saving through investments as your income above 2.5 Lacs will be taxable.

                                                              Tax Slabs for Individuals (2017-18)


A) Individuals below age 60


B) Residents senior citizen individuals (above 60 years of age and less than 80 years of age)


C) Residents super senior citizen individuals (above 80 years of age)


Step 2: Knowing the Tax Saving Investment Options

In the beginning of the financial year, preferably April or May, you should list down a set of financial investments, savings, etc., which have tax benefits. Learn about the key features of these products and its rate of return. Some tax-saving investment options include:

·         Public Provident Fund

·         Life Insurance Plan

·         Equity Linked Savings Scheme (ELSS) / Tax Saving Funds

·         Interest Payment on Housing Loan

·         Principal Payment on Housing Loan

·         Tax Saving Bank Deposit

·         Other options

Step 3: Choosing the Right Option
As you have seen there are many options to choose from, but you should pick up a product based on your need and financial goal. If you are considering the shortest lock-in period, then ELSS is one of the best tax saving investment options that  has the 3 years lock-in period only. It requires one time investment only, here you do not need to make compulsorily monthly investments as in case of PPF. Unlike PPF that has the upper limit of Rs. 1.5 lacs in one financial year, ELSS has no upper limit for investment, although in ELSS also you will get tax benefits only for investment up to Rs. 1.5 lacs. Selection of ELSS schemes should not be skewed. One should diversify it across 5-7 different AMC's to increase the concentration risk.

 One can invest lump-sum as well as through SIP's in ELSS Mutual Fund schemes, of course SIP is always a better way to invest as it gives you disciplined approach and you do not feel such investments heavy in your pocket, unlike Fixed Deposit, where one needs to invest lump-sum amount in one go.

Medical insurance, Life insurance are also good tax-saving products that give you peace of mind and heart by securing your life and health, as you know having insurance cover keep you financially ready for life emergencies.

Step 4:

Tax Declaration:
Almost every company ask their employees to provide an estimated figure of your tax saving or investments or housing loans details to work out your estimated tax for the year. For a second thought, you may feel that is just a formality and it is not so important and you can assume and rough figures. Ideally, it is wrong to practice as it is very important because your deductions would get influenced by the estimated taxable income, which will determine taxes.

Step 5: Tax Deductions
Once you are done with your tax declaration, you should check if there is still any tax liability in your income. If your income is still taxable, then you should ask your company to start deducting tax from your monthly salary since beginning only, as it will help you avoid cash crunch in the month of Jan, Feb and March.

By planning your tax early, you get the time to explore your investment options and choose the right product that gives you tax benefits along with wealth creation. In this way you will be able to reduce your tax liability and save as much tax as you are legally allowed to save. and most importantly, early planning save you from the eleventh-hour rush that is likely to push you towards taking wrong financial decisions.

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