March is that time of the year when procrastination haunts us and we say to ourselves this:
“How I wish I had planned for this earlier in the year!”
“How I wish I had spent more time in understanding how my income tax is calculated”
We hurriedly seek help from spouse, friends or even our friendly bank manager who in all probability tries to push a financial product that makes more money for him. Some of us get carried away with the advertisements of financial products which aren’t probably suited for us. If only we could break this never-ending “chakravyuh” of hurried tax planning and bad decisions.
How about a checklist manifesto, that helps you manage this complex process? In his book The Checklist Manifesto, Dr Atul Gawande, a surgeon at Brigham and Women’s Hospital in Boston, an acclaimed writer and a public health researcher found that surgeons in the US can use it to minimise infections, pilots maintain one to fly safely and restaurants use to improve quality of food and services they offer.
Checklist manifesto is nothing but a checklist of things you ought to keep in mind for performing a task efficiently. This is how your tax planning checklist should look like. If you aren’t in-charge of financial matters in the house, make sure your husband follows this checklist.
Get the estimated tax figure first: At the beginning of a new financial year, get your income tax figure from the human resource manager in your office. If he doesn’t help, then pick up your salary slip, and calculate it using online calculators.
Figure out your home loan prepayment amount: Get an accurate amount of home loan principal repayment from your bank at the beginning of the financial year. If the principal repayment figure is close to Rs.100,000, then you are half way through your goal. The balance requirement for Section 80C will be from your insurance or mediclaim premium contributions. Don’t forget to account for employee provident fund contributions also as you will find this figure in your Form 16 or with the HR manager in office.
Review your financial goals: If the home loan principal repayment amount isn’t big enough to take care of Section 80C requirements, list out your near-term goals (buying a car or house in next 2-3 years) or long-term goals (retirement, higher education etc) before you sign up for any tax saving investment.
Match investments with goals: Once you know your destination, you can decide which route you want to take to reach there. To buy a house five years down the line, a safe income yielding investment avenue like infrastructure bonds is needed. Not equity linked funds or insurance plans.
Sometime the tax saving options available may not entirely fit with your long-term goal, so a combination can work. So if the goal is to save for higher education, public provident fund (eligible for Section 80 C) along with regular investment in an equity fund (not eligible for 80C) will help.
Spread your tax contributions across the year: Bundle up all tax saving contributions in one month, and your monthly budget, (if you follow one) will go for a toss. So list out the months in which school fees, car insurance premium are paid, so that in the rest of the months, you can make new tax saving contributions like life insurance, mediclaim et al.
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