The financial year 2022-23 began on April 1st. It’s fashionable to play April fools in April, but you should avoid being a financial fool in the new fiscal year. According to Harshvardhan Rungta, CFP and Personal Finance Expert at Rungta Securities, you should begin financial planning in April. Not only can you save money by starting early, but it can also help you achieve your financial goals.
It’s also important to take chances.
To avoid risk, many people avoid investing in market-related options. Despite the fact that options like Equity Linked Savings Scheme (ELSS) offer higher returns than PPF, tax-saving FDs, and other post-office savings schemes, traditional investors avoid them. Apart from the tax benefits offered by ELSS under Section 80C of the Income Tax Act, these options provide returns that are higher than inflation over a long period of time.
As soon as possible, invest
Another common blunder made by taxpayers is to look for tax-saving investment opportunities at the end of the year. In the midst of all the craziness of last-minute tax planning, some mistakes can be made, leading you to invest in low-returning options. Last-minute rushes can result in missed deadlines for submitting proof of investment or delays in payment approval, increasing the chances of the tax payer not receiving the tax savings benefits.
Now is a great time to invest and save money on taxes.
You can save tax by pooling your funds in the final quarter of the fiscal year, but you will not receive a return on your investment. As a result, it’s best to start planning for tax savings right at the start of the fiscal year. This will provide you with a double benefit of avoiding taxes while also allowing you to receive returns throughout the year.
If you want to invest 1 lakh rupees in an ELSS to get a tax exemption, but you make the investment in the last month of the financial year, March, you will save tax on the 1 lakh rupees you invest, but you will not be able to get the 70 to 80 percent return that has been promised. That is, if you invest at the right time, you can make a profit of 70 to 80 thousand dollars on a one-lakh investment.
Combining insurance and investment is a bad idea.
Many taxpayers make the mistake of combining insurance and investment. Endowments, money back policies, and ULIPs are popular choices for these individuals. Such products do not provide adequate insurance coverage or better returns. Additionally, they have a 5-year lock-in period. Simultaneously, products such as pension plans are locked-in until you reach retirement age. As a result, when planning for tax savings, it’s best to keep insurance and investment separate.
The primary goal of purchasing life insurance is to provide financial security to your family in the event of your untimely death. Term insurance is a good option because it provides coverage for 10-15 times your annual income for a low premium.
Investments should not be made solely for the purpose of reducing taxes.
According to Ajay Kedia, Director, Kedia Advisory, “you should compare the returns, liquidity, and risk of other investment options like ELSS, PPF, or NPS rather than just looking at their tax benefits.” You will be able to get better returns while also saving money on taxes if you do this. This will also aid in the timely accomplishment of long-term objectives. For example, saving for retirement and putting money aside for children’s education. Before you invest, keep in mind that your primary goal should not be to save money on taxes, but rather to make a profit.