While setting goals without tax planning does not allow you to increase the yield on your investment due to tax-exempt profits.
Now that the turmoil of investing in section 80C tax and other categories is behind us, it is time to make sure you make the right choices for the next financial year. Remember that investing is a priority, while tax savings are one of the consequences. There is a real risk if you make tax savings your goal. They usually come in the form of long-term returns, poor returns, high taxes on refunds, and purchases of products that do not suit you. Besides, every investor has different financial goals. To get the most out of it, they need to do the right thing. Positive thinking - both tax planning and goal setting are critical pillars of long-term financial planning and you cannot achieve one without the other.
Goal setting is an unconventional process of identifying a variety of short, medium, and long-term goals through structured and defined programs. This can be done by managing the finances and linking each policy to the appropriate investment vehicles. On the other hand, tax planning is a way to increase income or return on investment above used by taking advantage of various tax deductions and exemptions granted under the Income Tax Act. Let's say that when it comes to financial planning, it's much easier to plan a trip once you have a destination.
Prepare for investments while saving taxes
Whether your goal is to save a car, a house, or a comfortable retirement, it is important to choose the right investment mix that will help you achieve your desired goals, while using the available benefits to reduce your overall tax burden. Section 80C, for example, can help you reduce your taxable income by Rs 1.5 lakh per financial year instead of investments made in ELSS, PPF, ULIP, tax savings deposits, life insurance schemes, NSC, etc. However, because of low employment and high profitability due to equity exposure, investment products such as ELSS, ULIP, etc. are often the most popular tax-saving options. Investors need to look beyond popular investment options. You can reduce your tax debt by Rs 50,000 each year by investing in the National Pension Scheme (NPS) under Section 80CCD (1B). In addition to tax savings, the NPS is a great retirement savings tool. Because of the consolidation capacity, with an average yield of 12%, the allocation of Rs 5000 per month for an investment of 30 years will give the corpus crores of Rs 1.76 at retirement.
Let your needs guide your investment decisions
Prospects for high returns or tax savings should not be limited to driving. Sometimes, our needs require an investment decision that greatly benefits long-term family goals. For example, the health and safety of family members are a priority for all of us, including parents and in-laws. Because of deteriorating age-related problems and other pre-existing conditions, it is important to purchase health insurance from older family members. One can invest in a medical-claim policy or a family float plan. Paying for health care expenses through your pockets can cost you money and harm your ability to meet other financial goals. In this case, the 'value' of health insurance as a risk management tool far exceeds its 'costs'. Insurance cover not only protects reducing medical and hospital bills but also guarantees that your loved ones can receive the best possible health care services as they need them and when they need them. Besides, premiums paid for the health insurance of trustworthy parents/in-laws are taxable costs under Section 80D. You can claim up to Rs 25,000 (for parents under 60) or Rs 50,000 (for parents over 60), in addition to Rs 25,000 for the cost of your health insurance of your spouse and dependent children. Therefore, making it possible to claim anywhere between Rs 50,000 to Rs 75,000 in health insurance costs.
Take an organized approach to invest
Most of us wait until the last minute to invest. It is wise to spread your investment throughout the year. ELSS and NPS funds allow SIPs, while other products allow you to invest all year round. It is important to take advantage of the average cost when investing in equally connected products. Even if you are investing in fixed returns, it makes sense to invest throughout the year so that there is no pressure to go out at the end of the financial year.
Take advantage of tax breaks when available
Sometimes tax compensation presents opportunities for good savings. If you lose long-term revenue by selling stocks or mutual funds, you can eliminate that loss by earning long-term gains from the same items, as long as the tax is included in the year of making the loss. Self-employed professionals and entrepreneurs who want to buy a car (and use it for legitimate business purposes) may want to reduce inventory to reduce their tax revenue. The discount rate is 15% for cars purchased before September 30 and 7.5% for those purchased after that. So, if you buy a car worth Rs 10 lakh, your annual tax debt can be reduced by an additional Rs 1.5 lakh. Also, interest paid on such a car loan can be claimed as business expenses to cover your entire salary. Also, other tax deductions such as interest on home loans (Section 24), HRA replacement (Section 80GG), donations (Section 80G), etc. are some popular ways to reduce your tax debt.
The two are related strategies. Unsustainable tax planning can lead to improper budgeting. While setting goals without tax planning does not allow you to increase the yield on your investment due to tax-exempt profits. Keep in mind that you are investing in the financial future. It is important to start early, plan your investment, and invest all year round. There are various types of tax preparation available. Know your various investment deductions, health insurance, pension plans, loan deductions, and grants. Get professional help if you think you need it.