Save Tax & defeat the Tax Monster even at the 11th hour!!
Every year, the month of March springs a wakeup call on many of us. Suddenly, we are rushing at breakneck speed, going through financial papers, researching investment instruments, frantically calling the accountant—the deadline to file income tax returns is once again too close for comfort.
There are many reasons why we put off filing our tax returns each year—work, family pressure, and even sheer laziness. We are all wired to procrastinate; blame it on human nature. The point is this: Should we at all be procrastinating about something as crucial as our tax planning ?
Last-minute tax savings: Why it is a problem
- Higher financial burden – Last-minute tax savers often have to scrimp during the last few months of the financial year because a bulk of their income is now directed into tax-saving instruments. The problem is compounded by the fact that the largest chunk of income tax is deducted during the final quarter of the financial year—i.e. from January to March.
- Greater opportunity for error – Rushing is never a good idea, especially when your financial well-being is at stake. In the hurry to make good on the potential to save tax , you could make poor financial decisions and invest in unsuitable products. For example, a 25-year-old confirmed bachelor with no dependents has little need for life insurance, but he might buy a policy at the last minute in an attempt to save tax.
- Dangers of mis-selling – When attempting tax savings at the 11th hour, many people consult agents and blindly take their advice. You should never take an agent’s sales pitch at face value because (a) there is the obvious danger of mis-selling by an unscrupulous agent and (b) even an honest agent may not be sufficiently aware of your financial condition. It is necessary to do your own research, which is not possible at the last minute.
- Processing takes time – Note that buying a tax saving investment is not like buying groceries; there are procedures and it takes time. Furthermore, there may be unexpected delays for various reasons. Postpone your tax planning until too late and you run the danger of missing your tax filing deadline.
Tax planning: Why you should start early
- Make good investments – You should ideally give yourself time to research tax-saving products so that you are certain of getting a good deal. Starting early also ensures that you benefit from the potentially higher rate of returns than your savings bank account would offer you.
- Spread out the burden – If you start planning early, you can spread out the cost of making smart investments. Smart planning ensures that you do not have to adopt austerity measures as January comes around in a bid to do save as much tax as possible.
- Look at the bigger picture – The longer you procrastinate, the greater the possibility that you will be looking at tax savings through blinkers: Your main goal will then be to save taxes in that particular year rather than on which tax-saving investment instruments benefit you over the long term. This really is the most important factor in favour of starting early, as it enables you to plan for your financial future in a better and more holistic way.