Avoid Last Minute Tax Savings: Here Are 5 Reasons To Start Tax Planning For FY 2023-2024 Now

Now that we are reaching the end of the financial year, most of us find ourselves in the hunt for last-minute tax-saving investments to reduce our tax liability. If you were in such a situation this month, you are probably looking forward to April 2023, the beginning of FY 2023-2024. That’s because you believe that you do not need to think about taxes at least for the first few months of the new financial year

Well, this is a mistake most of us tend to make. Delaying your tax planning can leave you scrambling at the eleventh hour. And in such confusion, you may end up investing in instruments that may not align with your financial goals.

Hence, the best time to start planning your tax-saving investments is right at the beginning of the financial year. Here are four reasons to plan your taxes from the beginning of the year:

Choosing tax-saving investments at the last moment may lead to confusion and can also end up being monetarily unfruitful. Whereas, when you start your tax planning in April i.e., the beginning of the financial year, you can carefully research and learn about various tax-saving options before investing. Moreover, this way you will also get the time to align your financial goals with your tax-saving goals. 

For example, investing in an Equity Linked Savings Scheme (ELSS) for the long-term can not only help in saving your income tax but can also help in wealth creation as it may benefit from the power of compounding and be able to generate higher returns in long run.

Your financial condition may not remain the same throughout the financial year. Moreover, if you are a salaried employee, you may receive tax-deducted salaries towards the last quarter of the year. Hence, it is advisable to start making tax-saving investments early to avoid the risk of running out of funds later.

When you invest in tax-saving instruments, you need not invest the entire amount at once. Many instruments, like ELSS, allow you to invest in their schemes through Systematic Investment Plans (SIP), where you can invest a predetermined amount regularly at fixed intervals. This way of investing not only proves to be light on your pocket but also allows you to enjoy adequate liquidity throughout the year.

One of the key advantages of SIPs is that over a period of time, your investment cost gets averaged out as you keep investing during different market cycles. You may get more units of your mutual funds when the NAV of the mutual fund is low and vice versa. This benefit of rupee cost averaging is not available when you make lump sum investments. Thus, by starting an ELSS SIP early in the financial year, you can tackle market volatility.

Did you know that you can reduce your income tax liability with different components in the salary you receive? For example, you can avail Leave Travel Allowance (LTA) as a tax exemption twice in every four years for a domestic trip with your family (spouse, dependent parents, children or siblings). Some other tax exemptions you can claim under your salary are House Rent Allowance (HRA), child’s education, telephone bills, etc. Planning your taxes early can help you identify these exemptions and accordingly request your employer to restructure your salary.