If last year’s tax planning was a failure, here’s how to avoid making the same mistake this year.
The deadline for making tax-saving investments in a given fiscal year, March 31, has now passed. Typically, taxpayers rush to make such investments before the end of the fiscal year to receive tax deductions under Section 80C of the Income-tax Act. This does not have to be the case; you may make these investments throughout the year and avoid the last-minute rush. However, many people only realise they’re running out of time as the May 31 deadline approaches. You can avoid such misfortunes by putting in place a financial strategy, which includes tax planning, right at the start of the new fiscal year in April. Starting April 1, here are four financial resolutions you should make—and keep.
THIS APRIL, CREATE A FINANCIAL STRATEGY.
Begin by creating a budget for yourself and your family’s needs. Examine your prior year’s earnings, expenses, and future objectives.
If you’ve earned a large annual bonus, consider prepaying your expensive loans, if not entirely, at least significantly.
Invest in mutual funds online. Increase your allocation to mutual fund systematic investment plans (SIPs) that are aligned to your goals when your salary increases.
If you don’t increase your investments each year, you won’t be able to build wealth.
MAKE TAX PLANNING A PART OF YOUR LONG-TERM FINANCIAL STRATEGY
To avoid mistakes, it is advisable to begin the exercise for 2022-23 now rather than waiting until the end of the year. It is preferable not to postpone tax preparation until the end of the fiscal year. Investors frequently become impatient as the deadline approaches, and this is when the majority of blunders occur. At the start of the financial year, you can start SIPs in your equity-linked saving schemes (ELSS funds) or invest in a PPF. It should be a year-round activity by your financial plan and objectives. It should be a part of your overall financial strategy. Most taxpayers who wait until the last minute to save money on taxes end up investing in the incorrect instruments.
START BY REVIEWING YOUR OBJECTIVES
Every year, just like your annual assessment, it’s critical to review your goals and the performance of various investments you’ve made. Short-term ambitions in which you may have invested may become obsolete in many circumstances. A goal assessment at the start of the year can help you spot such investments and redirect them toward longer-term objectives. It could, for example, be a car purchase that you have been putting off forever. If you invested in short-term debt instruments, you could now move the assets to equities for superior long-term returns. You should also adjust your investment portfolio by your asset allocation strategy. You can revert to your asset allocation if there is a 10% variation from your pre-set asset allocation. Restructure your asset allocation to stay as close as feasible to your initial asset allocation.
IDENTIFY YOUR INSURANCE REQUIREMENTS
Examine your insurance—both life and health—immediately, rather than after you submit your investment evidence or before March 31. Insurance plans are intended to meet critical needs and should not be viewed solely as tax shelters.
Your life insurance coverage should be at least 10 times your annual salary, as a matter of thumb. However, because you have time on your hands, you should inventory your assets, goals, loans, and your spouse’s income to arrive at a precise amount. When it comes to health insurance, a 40-year-old couple with two children should start with at least Rs 10 lakh in coverage and evaluate it every five years. If your life goals have changed, such as purchasing a home or having a child, you should increase your insurance coverage.
DON’T BE MISLED BY CRYPTO’S RAPID PROFITS
Cryptocurrencies have been in the news since their debut, but particularly after Budget 2022, which imposed a 30 per cent tax on gains. Our advice to consumers who have inquired about investing in cryptocurrencies is simple: if you have money that you are willing to lose, that is the kind of money you should put into cryptocurrency. It’s a risky investment that should only account for a small portion of your long-term portfolio. With the introduction of a 30% tax on crypto earnings, the chore of generating returns while investing in cryptos has become much more difficult.
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