Mumbai: More than six months to go for the closing of the financial year and the question that might arise in your mind is whether it is the right time to invest for saving tax. Generally speaking, most tax payers start the process of investing in various instruments in the month of March to achieve their targeted quota of investment, which would bring them tax saving.
A large cross section of taxpayers feel that well within the framework of the income-tax provisions as are existing as on today, the choice lies with the tax payer to make investment for tax saving at any point of time during the financial year.
Because of this provision existing in the statute book, the general tendency of the tax paying public of India is to get ready with the money for investment almost at the fag end of the close of the accounting year.
However, for a prudent investor, it would really be best right now to start thinking of making investment in tune with the tax provisions for achieving the optimum deductions as are permissible in the Income Tax Law.
Sooner the better would be the mantra for prudent investor to make his investment much ahead of the deadline of March 31, 2007. Therefore, an old saying, early to bed and early to rise is the only way to be healthy, wealthy and wise, holds good today.
Well, the dictum of this famous phrase can be applied with success to the theme of investment planning for tax saving. Yes, it is right time to invest early so as to achieve the goal of better financial bliss in the wonderland of investment planning.
1. Don't get into a last minute trapIf you are tuned to make the investment much ahead of the accounting year then the first big advantage that you enjoy is you prevent the last minute risk of gathering your funds for investment.
Because who knows, due to some pressing commitment at the end of the accounting year, in spite of your best effort, it might not be possible for you to make your investment in tune with the tax provisions for receiving a tax deduction from the income of the year.
This happens to be one first solid reason why you should now start make investment for enjoying the tax deduction in respect of current year's taxable income.
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2. Ensure maturity well before year endThe second important reason to make the investment much ahead of the closing deadline of 31st March is that if you are tuned to a particular investment right now much ahead of the dead line of investment then you are enjoying the benefit of early maturity period, when the said investment will mature for you.
For example, if you make the investment right now let us say in bank fixed deposit so as to avail the tax benefit u/s 80C then surely the five years lock in period of this bank fixed deposit will start from today. Now, just compare the investment in bank fixed deposit if the same would made by you in the month of March, 2007 in which case the five year long period of wait for maturity of the fixed deposit will start from March, 2007.
Thus, if you make the investment right now, it is fast way to get back your money in respect of the invested funds because the lock-in-period starts from today and not from the end of the financial year.
3. Enjoy tax-free income early onThe third important solid reason in support of making the investment right now is that the benefit of tax-free income is enjoyed right from today and not from March when you make the investment. Thus, if today you are able to make the investment of your fund, let us say, in PPF (Public Provident Fund) or in ELSS (Equity Linked Savings Scheme) instead of making the investment in the month of March, 2007, then the income which is going to arise to you in next six months would be completely tax exempted because in any case the income from PPF or ELSS is exempted within the purview of the Income Tax Law.
It, therefore, makes sense right now to take out your money and invest towards the start of the accounting year much ahead of the close of the accounting year and more particularly, if you are making the investment in instruments like Public Provident Fund so that your money gets invested in tax free instrument much ahead of March and thus the income arising from tax free instrument like PPF is for a longer period.
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Make investments out of any incomeWhen we are thinking of making the investment right now much ahead of the close of the accounting year, a question sometimes bothers tax payers with reference to the investment and the pertinent question generally coming to the mind of the tax payers is whether the investment to be made for the purpose of section 80C, is it to be out of the income of the year.
Many tax payers feel that if the investment for the purpose of section 80C of the Income-tax Act, 1961 is not made out of the income of the year, then the tax payer will not get the benefit from income-tax. This thinking of the taxpayer is not correct.
Now-a-days, there is no prohibition in making investment for the purposes of section 80C out of any of your funds.
Hence, if you are making investment for the purposes of section 80C right now and such money which you are investing is not out of the income of the year or may be partly out of the income of the year and partly otherwise, even then there is no problem to avail tax benefit. This investment could also be out of the maturity of some of your other investments.
In all situations, the benefit of section 80C would be available to you. With this clarification, you are totally free from the worry and you are now free to make the investment either in insurance or PPF or NSC (National Savings Certificate) or any other item within the framework of the provisions contained in section 80C which provides for investing any part of your money or your income and still enjoy the tax deduction.
Thus, it is cool time for you giving you lot of flexibility of making the investment in the manner as you like.
The author, Subhash Lakhotia, is a Tax and Investment Consultant.
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