Last minute tax planning

We are in the last week of March and it is high time to estimate your income tax liability and to check whether any planning is required or not. Though lastminute tax planning is not advisable, if due to any reason, you are not able to do any tax saving investment till date and 31^st March is approaching, here are some quick tips, which can help you:

(1) First of all you should consult a Chartered Accountant at the earliest. He will be able to check your current financials and will be able to guide you about your estimated tax liability and tax saving tips.

(2) Check which tax regime is beneficial for you…. old or new. The old tax regime has a fewer tax slabs and high tax rates with all the deductions and exemptions available. While the new tax regime has more tax slabs, with comparatively lower tax rates, without claiming any exemptions / deductions. To understand the difference between the old tax regime and new tax regime and to know which one should you opt for, please refer to my blog on the link https://hansinibuch.blogspot.com/2023/04/new-tax-regime-vs-old-tax-regime-what.html.

If the old tax regime is beneficial to you, then you should immediately do the necessary tax saving investments. But if the new tax regime is beneficial for you, then there is no immediate requirement to make tax saving investments. Your Chartered Accountant can guide you about which tax regime you should choose.

Here, please note one thing that the investments are made for our safe financial future and to fulfill our future financial needs and goals, and not only for tax savings. But, as we are discussing here about last minute tax planning, you can skip to invest in hurry before 31^st March, if you are going to opt for new tax regime.

(3) Always maintain enough liquidity in your bank account in the month of March so that you can immediately transfer the required amount to any of the tax saving instruments.

(4) Check the status of your current tax saving investments. Calculate the total amount which has already been invested during FY 2023-24 in tax saving instruments like PF, PPF, life insurance premium, children’s school fees, principle repayment of home loan, etc. Now, you will have to worry about only the balancing amount falling short to complete the investment of ₹1,50,000/-.

(5) Try to use the existing set up of your tax saving investment. For example, if you already have PPF account, you can quickly transfer the necessary amount to that account and save tax.

(6) Consider National Pension System (NPS) to claim additional deduction from income up to ₹50,000/-.

(7) Never buy any life insurance policy or health insurance policy at the last moment merely for the purpose of saving tax. The basic purpose of the insurance is risk coverage and not tax saving. And therefore, insurance is something which should not be selected in haste or in haphazard manner. Because, it is not possible to understand all the terms and conditions of the insurance policy within short time.

(8) To suggest one investment for tax saving at the last moment, Equity Linked Savings Scheme (ELSS) can be the best option. It is also known commonly as ‘Tax saving mutual funds.’ The reason to select ELSS for the last moment tax planning is:

- It is easy to invest in ELSS of any good mutual fund house. If you are using online banking facility, then you can invest in ELSS sitting at your home or office.

- As you are doing it at the last moment, your investments may not be aligned to your goals or future plans. ELSS has the shortest lock-in period (three years) among all tax saving investment options. Therefore, you will get back your money soon and have the chance to reinvest them with proper planning.

- ELSS is one type of mutual fund only, which invest in diversified portfolio of equity shares. Therefore, they are well-regulated.

- ELSS offer good returns, if held for long term. So even if you want to continue with your ELSS investment even after lock-in period of three years, you can expect good returns in the long term.