Should we save tax? Yes, of course. What about financial planning? That’s vital too. Are financial planning and tax planning opposing sides? No, they aren’t. Tax planning and financial planning go hand in hand.
In India, thanks to the annual budget where tax laws are regularly tweaked, many of us are lost in which products to buy and how to invest to save tax. Tax slabs may change; however, taxation will never go away. We need to ensure that we design our financial planning in a way which is complementary to the prevailing tax laws. So, how do we go about it?
First, we need to conduct a deep and thorough check into our finances.
- How much do we earn?
- How much do we splurge on a monthly basis?
- How much do we pay in tax?
- Do we have any savings?
- What are our short-term and long-term investment goals?
- Are we insured?
Once we realise our investment goals, we need to make calculations and decide in which assets can we invest in to meet our short-term and long-term goals? After answering all these questions, we get a clear idea of investments which can help us save tax to the maximum.
We also need to prepare a financial plan at the start of the financial year. This will help us gain a clear idea on how much to invest in which financial products so that we can save the most on tax. For instance, if we invested in PPF, have EPF deducted from salary, and pay the tuition fee for your children, we will easily cross the INR 1.5 lakh limit of Section 80C and not rush at the year end to invest in other financial products to save tax. Go through the various rules and regulations for deductions under sections such as Section 80C, Section 80D, and Section 80G of the Income Tax Act and others to use it to our advantage.
One of the best things we can do to balance financial planning and tax planning is to consult and excellent advisor who can guide us through these areas to ensure we save tax the most while making proper financial decisions.