Womoneya

You don’t think there’s a difference? Let me explain what the difference is.

Its March, HR is breathing down your neck regarding your investment details for Tax deductions. You are so busy with work, family and friends, you keep stalling this activity. To be fair the HR starts the process from January onwards, however you start reacting to it only when the last and final call is given. I was guilty of it too when I was working. Once you give your details, you are told about the amount of Tax that will be deducted. Obviously now starts the last -minute scramble to save this tax and you start searching for financial products to invest in.  You ask your colleagues and friends for advice, with no time to evaluate, you invest regardless of whether that product is right or wrong.

This is not Tax planning; this is just tax saving. According to me Tax saving should be an outcome of the financial planning that you have done.  Just so you know that Tax Planning is done based on the expenses incurred by you (Home loan, Tuition fee, education loan, insurance, reimbursements etc.) or investments (ELSS, PPF, NPS, Bank FDs, Post office certificates, etc.) And all these form the basis of your financial plan.

As per your financial plan, if you are already having a home loan, insurance for life and health, then part of the tax planning is done.  Now what needs to be reviewed is investments, so here again, you need to review your existing investments and based on your risk profile choose the appropriate investment product.  This is best implemented from the beginning of the financial year. The benefit of this is that you can spread your investment amount across the 12 months, instead of a lumpsum amount at the end of the year.  We have seen people making an investment in insurance products via credit card too because they don’t have the required balance in the bank account. Now this cannot be tax planning.

There is a reason why we have been provided so many investment options that range from a very low risk (PPF, FD,)to medium/high risk(NPS,ELSS), products that give low to potentially high returns.  Another aspect to consider is the lock in period, and whether the returns are guaranteed or based on the market performance.  Objective is to choose products that gives you optimal returns based on your risk-taking ability and timelines. Tax saving is a byproduct of this.

When you approach financial planning holistically, it takes care of tax planning as well and tax saving becomes an outcome of it. You choose appropriate investment and financial planning products as per your goals. For e.g. Goal is to buy a car in 4 years, you need around Rs. 5 lacs for downpayment. You can opt for systematic investment(SIP) in ELSS

Point I am trying to make is that, when you make a financial plan taking into consideration your life goals, you not only choose financial products that help you with your life goals, but also helps in planning your tax outflow. If you leave it to the last minute, you may just end up making tax saving as a goal.

*Mutual Fund investments are subject to market risks, read all scheme related documents carefully. The NAVs of the schemes may go up or down depending upon the factors and forces affecting the securities market including the fluctuations in the interest rates. The past performance of the mutual funds is not necessarily indicative of future performance of the schemes. The Mutual Fund is not guaranteeing or assuring any dividend under any of the schemes.