Tax planning helps in minimising your tax liability by using various tax exemptions and deductions. Read on to know about a few simple ways to save money through efficient tax planning.
Efficient tax planning can help you to save a good amount of money in the long run. With smart tax planning, you can enjoy your income to the fullest and achieve your financial goals as well. Tax planning can be done in a simple way; you just need to follow the five amazing ways we have discussed in this article.
Let’s see what you need to do for efficient tax planning.
Estimate Your Taxable Income In Advance
Estimation in advance about how much income you would be having at the end of the financial year can help you find out your expected taxable income and amount. Once you have an idea of your expected tax liability, then you can accordingly find ways to reduce it using eligible tax saving instruments.
For example, you had a taxable income of Rs. 5 lakh last year and if you estimate a growth in net income by 20%, then your taxable income may also increase in that proportion. So, you must make a tax saving plan early in the year to avoid the last-minute rush.
Plan Your Investment And Expenses
Once you have an idea about how much tax liability you may incur at the end of the year, then you can accordingly plan your investment and expenses to save tax. For example, if you are expecting your taxable income to be at Rs. 6 lakh at the end of the year, then you can start investing money every month in tax-saving instruments. Investments in PPF, ELSS funds, Fixed Deposits, NPS etc are eligible under Sec 80(C) while buying a Health Policy can help you in getting a deduction under Sec 80 (D).
Early planning of investment for tax saving purpose can allow you time to select a more efficient instrument, which can allow you more liquidity, higher return at low risk and help you to accomplish your financial goal in a better way. When you diversify your investment in 12 months’ time period, then it also helps you tame the market volatility and earn a better return at the same time.
Keep Relevant Tax Related Documents Safely In One Place
During the financial year, you may spend money on things for which you can claim deductions and save tax. So, you must keep bills and receipts of all such transactions handy. It would be wise to maintain a diary for such transactions or keep them handy in your mobile apps so that you can use it when filing tax. Medical bill, travelling bill etc are important documents which may be required as a proof for claiming deductions under the eligible heads.
Assess Your Tax liabilities On Regular Interval
Once you have an estimated figure of the tax amount for the financial year, then you should continuously assess the actual income and expense on a regular interval, and make adjustments in your tax saving plans accordingly. For example, if you have expected a net income of Rs. 50,000 per month, but your income increased to Rs. 80,000, then you should raise the investment accordingly or take an appropriate step.
If you do not keep a regular watch on your expected tax liability, then at the end of the year you will find it difficult to invest big amount all of a sudden to save tax.
File ITR Well Before The Last Date
You must file the tax well before the last date to avoid mistakes as they may result in scrutiny or a notice from the I-T department. If you file the tax in right time, then you also have a better chance to get the TDS refund in a short time.
You must consider tax filing as a core part of your financial goal. Some people live in the fear of getting a notice from the I-T department as they do not plan their tax properly. If you plan your tax well, then you’ll know your exact financial status and you’ll feel confident in responding to all queries raised by the I-T department. Also, you must not hesitate in taking the advice of a tax advisor when you’re planning your taxes.
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