Tricks to Save on Tax and Earn Returns
April 29, 2017 . 216 views
April is the month of summer vacations, travel plans and tax declarations. Typically, declaring investments to save taxes is something most of us end up doing without thinking. Then, come year-end, we scramble to invest just to save tax, and most of the time, we end up falling short.
It is like going to the movies without checking out the listings and pre-booking tickets accordingly. Your only option is to then watch whatever film is running, for which tickets are readily available. It is a no-brainer that the chances of you ending up in a bad movie are quite high.
Why do this, when there is a better way to go about your tax-planning investments?
Here are some tips to keep in mind in order to get a more balanced investment portfolio; one that will not only save you taxes, but also give you decent returns.
• Set your financial goals at the start of the year. Setting financial goals is similar to setting targets before beginning a new fitness regime. If you know how much weight you want to lose, it becomes easier to figure out how much you need to work out.
• You must also make a note of the return on your investments. Simply put, how much would you make in a year, if you were to put in ₹1000 in a particular investment.
• In addition to knowing the return on your investments, you must be aware of the tax implications. You could either check with your CA or your financial advisor about the tax liabilities on your investment. Some key questions you must ask:
a. Is the amount of your investment exempted from tax? For example, if you invest in NSCs or tax-saving fixed deposits, amount invested up to ₹1.5 lakhs, is exempted from tax.
b. Are the returns taxed? You should be aware that for some investments like NSCs and Five year FDs, even though the amount you invest is exempted, your returns do get added to your total income and are taxable.
c. Is TDS applicable?
• When getting insurance plans, remember that they are not just instruments for tax benefits. Choose these on the basis of your requirements; tax saving benefits that come with it, are just the icing on the cake.
• Lastly, ensure that you diversify across investments. Get as many deductions as possible, when you declare your investments. Try and stick to your declarations or you may end up with a huge tax bill come March.
Get to know Section 80C well, as that can help you reduce tax drastically. You can know more about Section 80C and how to save tax under it here , here, here and here.Trying to save taxes while maximising your returns isn’t easy. You will have to make an effort to research your investments, ask the right questions and make sound investment choices that get you the best of both worlds.
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