Why it’s time to start tax planning for 2022-23

Did you find yourself scrambling for tax deductions at the end of March? If so, you're likely relieved to push taxes out of your mind for a while.

But why bring up taxes now? As Confucius wisely said, "A man who does not plan long ahead will find trouble at his door."

This is especially true for tax planning. Waiting until the last minute often leads to rushed decisions and investments in suboptimal products. The result? Not only unnecessary stress but also missed opportunities for better returns.

To help you stay ahead, we’ve compiled some easy early-bird tips to plan your investments and save on taxes without the last-minute panic.

1. Start planning in April

Starting early is one of the best tax planning tips. The beginning of the financial year is the perfect time to assess your total annual income and estimate your taxes. Several tax planning tools are available to help you do this, or you can follow the advice of your financial planner. If you are a freelancer or a self-employed professional, you may not know the exact amount of your total income for the year. In this case, you can work with an estimated figure.

2. Plan your investment

Take the time to research and identify the tax-saving instruments you want to invest in and decide how much to allocate to each. Consider breaking your investments into instalments to benefit from rupee-cost averaging. Additionally, explore different tax-saving schemes and calculate the potential savings they offer.

For example, under Section 80C, taxpayers can claim a maximum deduction of ₹1,50,000 per year. Suppose a salaried individual contributes ₹4,500 monthly to the Employees Provident Fund (EPF), leaving ₹96,000 to invest annually. They could start an SIP of ₹8,000 for 12 months in an Equity Linked Savings Scheme (ELSS).

ELSS is an excellent tax-saving tool. It’s an equity-focused mutual fund that invests at least 80% in equity and related instruments. ELSS investments have a 3-year lock-in period and qualify for deductions under Section 80C of the Income Tax Act.

Benefits of choosing an SIP for your ELSS:

• Investment in a diversified basket of equities
• Staggered investments take care of the highs and lows of the equity market
• Equities offer good returns
• Disciplined savings every month 

3. Organise your investment portfolio

Fine-tune your investments based on your financial health. For example, if you expect a salary hike, you can increase your investments to balance the tax increase. If you have exhausted the deduction limits, look for alternate instruments you can invest in that will help you achieve your financial goals.

Unplanned and lumpsum investments earn returns too, but postponing tax planning for the end of the year may result in missed deadlines and suboptimal tax planning. Sound planning throughout the year helps you avoid last-minute worries.

You can start investing in tax-savings instruments at the earliest and significantly lower your tax burden. The first step would be investing in Mutual Funds through the Investment Services Account with HDFC Bank. Log in through your NetBanking, go to the Mutual Funds options, click on request, and open Mutual Funds ISA Account.

Click here to open your ISA today! 

Wondering how to invest during high inflation times? Click here to read more about it!

*Terms and conditions apply. This is an information communication from HDFC Bank and should not be considered as a suggestion for investment. Investments in the securities market are subject to market risks; read all the related documents carefully before investing.