Why January is important month for TAX Savings

Why January is important month for TAX Savings

Rahul working in MNC is curious to know why everyone in office talking about investments, about tax saving schemes. Well, here are some observations. When there is salary hike in month of March then it is right time to transmit money for saving plans, SIP’s, home loan installments for any additional deductions. One can invest in tax saving mutual funds, insurance and sukanya samridhi scheme etc.

For market linked investments making investments at regular intervals is beneficial as one can have benefit of average cost of purchase.Thus one is protected from investing money at one go, when the markets are high and thus reducing overall benefit.

If anyone invests earlier than money invested has more time to grow. As compounding concept comes into picture as interest earned increases giving more benefit.

Avoid last minute investments and avoid mistakes. Investing ahead of time which can be analyzed as per the needs. When investments are made early then one can have tax planning early and thereby reducing taxes and increasing the take home pay.

Importance of starting/planning early:-

There are several advantages of starting early in the year:

  • You can make better choices and right investment decisions.

  • You could save tax more efficiently and capitalize on investment returns.

  • You avoid the last minute paperwork and mistakes.

  • You can eliminate the circumstance where you could end up not having enough money to spare for a lump sum investment at one go.

The best approach to tax planning is to invest throughout the year in a certain ratio such that by the end of the year you’ve taken advantage of most of the tax saving opportunities. The strategy of investing throughout the year in a staggered manner will not put liquidity pressure at the end of the year.

By composing the right mix of investments for your portfolio, you can pay less tax and ensure that you are receiving optimal returns. The Section 80C offers a broad range of options, each suited to a different need. Choose an option that fits into your overall financial plan. An Equity Linked Savings Scheme (ELSS) provides investors tax benefits combined with long-term wealth creation through equity exposure and comes with the shortest lock-in among all tax-saving instruments.

Investing in an ELSS through a Systematic investment plan (SIP) will not only be easier on the pocket, but will also, provide the benefit of rupee cost averaging and help take advantage of the power of compounding. This strategy is prudent as it decreases the risk of abrupt market declines which deplete your portfolio. SIPs lead to continuous investing regardless of fluctuating price levels in the market.

Let’s assume that of the Rs. 1,00,000 amount available under Section 80C your Provident Fund (PF) contribution (in case you are a salaried employee) in the year amounts to Rs. 70,000 leaving you with Rs. 30,000 to invest in other tax saving instruments.

By starting a monthly SIP of Rs. 2,500 in an ELSS fund you could cover the entire amount in a span of 12 months. This would not only reduce your load to save for tax investment at the end of the year but will also help benefit from the power of compounding right away!

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