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6 reasons why you must start planning your taxes right away

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Punctuality is not just limited to being on time to school, college or office. The said quality is equally important when it comes to planning taxes. Putting off tax planning can cost you a lot, whereas if you plan your taxes early, you get to enjoy several benefits.

Here are a few advantages of paying attention to your taxes right from the beginning of the year:

  • There will be no last-minute hustle for saving tax
    Time constraints often affect the quality of the work you do. This holds even while investing to save tax. Choosing an investment at the last moment can not only lead to confusion but may also turn out to be unfruitful monetarily. On the other hand, when you make a tax plan in April, you can research carefully before investing. Moreover, you will get the time to align your tax-saving goals with other financial goals and pick an investment that best matches them. For example, Equity Linked Savings Scheme (ELSS) not only helps you save tax but also may help you build wealth in the long run as it may have the potential to generate higher returns and benefit from the power of compounding in long run. An Equity Linked Savings Scheme is a type of tax-saving mutual fund scheme that invests in equities and equity-related instruments with a lock-in period of three years.
  • You can avoid the risk of being out of funds-
    Your financial condition does not remain the same throughout the year. Also, you may receive tax-deducted salaries towards the end of the year. Thus, it is wise to make tax-saving investments early and avoid the risk of being out of funds for investments later.
  • You can spread your investment amount
    Section 80C of the Income Tax Act, 1961allows you to claim a tax deduction for investments made up to Rs 1.5 lakh annually. When you invest in ELSS, you need not invest the entire amount at once, thanks to Systematic Investment Plans (SIP). A SIP is a mode of investing in Mutual Fund schemes regularly. When you start a SIP, a fixed, predetermined sum gets deducted from your bank account at fixed intervals and is invested in the scheme of your choice. You can start a SIP with an amount as low as Rs 500*. For ELSS, instead of a lump sum investment of Rs 1.5 lakh, you can invest through monthly SIPs of Rs 12,500 right from April. This not only proves to be light on your pocket but also lets you enjoy enough liquidity throughout the year. *The minimum SIP amount may vary across AMCs or schemes. Please refer to Scheme Information Document of the respective scheme/s.
  • You can benefit from rupee cost averaging
    The biggest advantage of SIPs is that your cost of investment gets averaged out over a period of time, as you invest during different market cycles. Your fund manager buys more Mutual Fund units when the NAV of a scheme is low and fewer units when the NAV of the scheme is high. This benefit, known as rupee cost averaging, is not available if you make a lump sum investment. Thus, by starting your SIP in ELSS early, you can tackle market volatility.
  • You can gain from the power of compounding
    Compounding means you not only earn returns on your principal investment but also on the returns that get added to it. This may convert a small amount into a large sum over time. However, the key to benefitting from compounding lies in starting early and investing regularly. Thus, the earlier you start your SIPs, the better it is for you to create wealth.
  • You can make the most of deductions
    ELSS can help you reduce your taxable income by Rs 1.5 lakh annually for the highest tax bracket of 30% U/S 80C of the Income Tax Act, 1961. (As per prevailing tax laws) and, in turn, help you save up to Rs 46,800 in taxes each year. However, there are several other allowances, deductions, exemptions available under the Income Tax Act, 1961. For example, you can claim a tax deduction for your health insurance premiums under Section 80D. Thus, when you start planning your taxes early, you get the time to explore various tax benefits allowed.

Tax planning is best done at the earliest. Although you must start right from April, it is never too late to begin.

Remember, investment in ELSS offers dual benefit of tax saving & wealth creation.

Want to make the move? Here are a few tax planning tips that can help you:

https://utiswatantra.utimf.com/uploads/infographics/dos-and-donts-of-tax-planning-0572498001608113279.pdf

Disclaimer

Equity Linked Savings Scheme (ELSS) is an open-ended equity linked saving scheme with a statutory lock in of 3 years and tax benefit. Minimum investment in equity & equity related instruments – 80% of total assets (in accordance with Equity Linked Saving Scheme, 2005 notified by Ministry of Finance).As per the present tax laws, eligible investors (Individual/HUF) are entitled to deduction from their gross total income, of the amount invested in equity linked saving scheme (ELSS) up to Rs. 1,50,000/- (along with other prescribed investments) under Section 80C of the Income Tax Act, 1961. Subject to prevailing tax laws. This creative is under Investor Education and Awareness Initiative of UTI Mutual Fund. To know about the KYC documentary requirements and procedure for change of address, phone number, bank details, etc. please visit
https://www.utimf.com/servicerequest/kyc. Please deal with only registered Mutual funds, details of which can be verified on the SEBI website under “Intermediaries/market Infrastructure Institutions”. All complaints regarding UTI Mutual Fund can be directed towards service@uti.co.in and/or visit www.scores.gov.in (SEBI SCORES portal). This material is part of Investor Education and awareness initiative of UTI Mutual Fund. Calculation on goal calculator is for illustration purpose only and not an indication of the performance of any schemes. Calculation is based on assumed rate of return and actual return may vary. Performance may or may not be sustained in future. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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