Begin your tax planning early by investing in ELSS

Tax planning is one of the key facets of financial planning. While filing Income Tax Returns (ITR), taxpayers should appropriately disclose all their incomes, including income from assets such as rental income from house property, interest income from bank fixed deposits (FD), capital gains, and dividends from mutual funds and stocks, etc. Also, taxpayers are allowed to claim tax deductions under various sections of Income Tax Act such as Section 80C, which allows taxpayers in the old tax regime to claim a deduction of up to Rs 1.5 lakh from their taxable income by investing in eligible tax-saving schemes. 

Why plan early? 

Many people start their tax planning at the eleventh hour, which leads to the last-minute scrambling to make their investments for claiming Section 80C deduction. Therefore, it is prudent to begin tax planning early. Below we have listed out a few reasons for the same. 

Maximise tax savings in an effective way 

When you begin your tax planning early, you get a fair idea of how much to save in order to qualify for Section 80C deductions and invest in eligible investments at the beginning of the year itself. This way you get an opportunity to plan your expenses better along with the benefits of tax savings under section 80C. Further, it will also save you from not falling into the trap of mis-selling that happens when you plan to save tax at the last moment. Hence, early tax planning helps you save tax in an effective way. 

Investing depending upon your risk appetite:  

When it comes to tax deduction under section 80C, there are various eligible schemes available for tax savings bearing different risk-return characteristics. Therefore, when you plan early, you have ample time in hand to understand your risk appetite and then, invest accordingly. Say, for instance, if you have a moderate risk appetite, you can invest 50 per cent in Equity Linked Saving Scheme (ELSS) and the remaining 50 per cent can be invested in Public Provident Fund (PPF). This way, you can manage your investment risk. 

Ploughing back your ELSS investments: 

If you plan early then, you can plough back your ELSS investments to create a permanent tax saving without shedding money from your pocket every year. This means that you should invest in ELSS for the first three years, and then from the fourth year, you can redeem the first ELSS and again, invest in ELSS to get the tax benefit in the fourth year. Then, do the same for the coming years. This will help you create a permanent tax-saving tool.