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Why You Should Start Investing Now to Save Tax?


 Section 80C of the Income Tax (IT) Act, 1961 offers several tax benefits. You may invest in different types of financial instruments to reduce your tax liability during the year. However, it is crucial you do not wait until the last moment to invest in these instruments to take advantage of these tax savings.

It is possible that even if you make the investments a few days before the end of the financial year, you may not be eligible for availing the tax benefits. This is because your check has not cleared on time or is rejected to some technical glitch. Therefore, do not wait until the end and start your investments today.

Here are two possible disadvantages of investing in the last moment.

  1. Transactional issues

As already mentioned, to claim benefits, the tax saving investments must be completed within the financial year. The date on which the investment is made is crucial and not the check date.

  1. Inaccurate choices

When you invest at the last moment, you may not have the time to thoroughly research the different available options. You may be in a hurry and not have the time to focus on identifying the most appropriate investment avenues as per your personal requirements. It is possible that you may make incorrect choices, which prove detrimental to your interests. Therefore, investing in a timely manner to ensure you invest in the best mutual fund for tax exemption is recommended.

If you still have not invested, here are three beneficial last-minute tax saving options.

  1. Public Provident Fund (PPF)

You may open a PPF account in the post office or any authorized bank. It is recommended you invest in the same either through an electronic transfer or in check. In case you invest in cash, you will need to retain proof of these funds, which may be needed by the tax authorities.

Most of the post offices offer cash or check facility to invest in PPF. Therefore, there is a possibility of rejection due to signature mismatch or spelling errors. In case the check is returned, you may need to present it again or issue a new one. If all these formalities are not completed before the end of the financial year, the tax benefits would not be available. Therefore, you will need to pay the tax, which otherwise would have been saved.

Some banks may allow you to invest in PPF through an online facility. However, it is important to invest early. This is because you do not want to lose the tax benefits because the online transaction could not be completed due to bank’s website issues or slow internet connectivity.

  1. Mutual fund investments

One of the best mutual funds for tax exemption is the equity-linked savings schemes (ELSS). Among all other types of tax-savings options, ELSS has the lowest lock-in period of three years. Furthermore, ELSS is able to deliver superior returns when compared to PPF or a bank’s fixed deposits (FDs). These mutual funds invest in equity-related products and are able to deliver higher returns.

You may buy ELSS online to make the procedure quick and hassle-free. However, slow internet connection or downtime of the website may cause delays. Therefore, invest early to avoid such technical issues. Furthermore, when you invest for the first time, you will need to complete the know-your-customer (KYC) formalities, which may take a few days. Ensure all these are completed in a timely manner to ensure no delays make you ineligible to claim tax benefits.

If you do not buy ELSS online but with a check, the tax benefit is subject to the date of realization. Most private sector banks clear checks in a day or two. However, public banks may take longer and it is recommended you do not wait until the last moment to invest. In case the check is returned or rejected, the investment is incomplete and the tax benefit will not be available to you.

  1. Life insurance plans

You may buy a life insurance plan at the end of the financial year to reduce your tax liability. However, because of the shortness of time, you may not thoroughly analyze its benefits and disadvantages.

Availing life cover is important but tax saving must not be the primary objective. The most important reason to buy a life insurance policy is to protect your loved ones from financial difficulties in case of your untimely demise.

To claim the benefits on your tax savings investments, it must be completed during the financial year. In other words, the investments must be made between 1 April and 31 March including both dates.

Invest today and reduce your tax liability.

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