The deadline for tax-saving investments for FY2022-23 ends on March 31, 2023. Here are key tips to keep in mind
As the primary goal is to reduce tax liability and increase savings, tax planning is one of the crucial components of financial planning. One has more disposable income the less tax one has to pay. Since March 31 marks the conclusion of the fiscal year, it is imperative that you make tax-saving investments to increase your disposable income. But in the rush of the last minute, people might make mistakes that could end up costing them later.
Estimate the tax liability
First, taxpayers should calculate their tax liability after taking into account any mandatory investments or payments that are eligible for a tax deduction, such as term insurance plans, HRA tax deductions, EPF contributions, home loan principal and interest repayments, NPS contributions included in their salary package (if any), and so on.
They would be able to keep from overspending or underinvesting in tax-saving strategies thanks to this.
Invest with a long-term approach
Identify the tax regime
People who make a salary should choose which tax system is best for them (the old one or the new one). Investors should determine their tax obligations under both tax regimes and choose the one with the lowest tax outlay for better tax management.
In order to help those who couldn’t benefit from the earlier tax system, Budget 2020 established a new tax system with a reduced tax rate. This regime is optional, though.
Invest in voluntary investments eligible for tax deductions
Through various voluntary investments or contributions that qualify for a tax reduction under different parts of the Income Tax Act, the remaining tax liability may be reduced. These include investments in ELSS, NPS, ULIPs, VPF, PPF, and other small savings schemes that are eligible for Section 80C deduction, an additional deduction for investments in NPS up to Rs 50,000 under Section 80CCD (1B), a deduction under Section 80GG for those who live in rented housing but do not receive HRA, and obtaining HRA exemption by paying rent to parents under Section 10(13A), among other small savings schemes.
Making investments with proper planning
Many people disregard the rate of return when considering an investment.
On websites, in commercials, etc., the rate of return on assets like PPF and FDs is easily accessible. However, the rate of return on investments like ELSS, ULIP, etc. is unclear because their values change daily.
Therefore, experts advise that before investing in them, a person should determine whether their returns are sufficient when compared to the return on other investments.