Efficient tax planning is just as important as smart investments in long-term wealth creation. As the new fiscal year begins, individuals should start as early as possible to ensure tax planning. The idea should be to see it not just as a year-end activity, but as a repetitive process with a long-term perspective. The earlier you start, the better the chance you have of overseeing the efficient implementation.
Here are some tips from tax planners and experts to follow in the current fiscal year:
According to Sandeep Sehgal, Director – Tax and Regulatory at AKM Global, a tax and advisory firm, the beginning of the fiscal year is a perfect opportunity to do all of the tax planning.
During this time, Sehgal says, companies will require employees to provide investment declarations for TDS deduction purposes. Therefore one can plan and carry out religiously during the year.
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Consider risk profile
Sehgal also advises that investments etc. made should be commensurate with the risk profile and risk appetite of the taxpayer and the tax.
However, there are some tax deductions that are absolutely essential, such as: B. Risk insurance, health insurance for family members, etc. These should be chosen as compulsory.
Keep the receipts
The receipts for investments / expenses etc. should be properly kept and kept for further inquiries from the tax department.
Check the terms
Wherever conditions for claiming an exemption are specified, Sehgal should take them into account, e.g. For example, some regulations stipulate that payment must only be made by check and bank channel and not in cash. These conditions must be met.
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Choose the right tax regime
At the start of this fiscal year, a person will have to choose between two tax regimes, i.e. an existing tax regime and a new tax regime announced in the 2020 budget. Before undertaking any tax planning, an individual needs to have a clear idea of which tax system to opt for, as the tax rates, exemptions / deductions are very different in both tax systems.
According to Kapil Rana, founder and chairman of HostBooks Ltd, individuals who opt for the existing tax system can claim deductions under Chapter VI-A. You cannot claim any deduction under Chapter VI-A with the exception of 80CCD (2) if you opt for the new tax system.
Similar to deductions, people talking about exemptions like vacation pay (LTA) or house rent (HRA) should only consider when planning a tour that LTA is only liable for an exemption if they opt for an existing tax regime.
If individuals stay on rent, they will only be eligible for an exemption from the HRA if they opt for the existing tax system. Likewise, most of the exemptions are not available under the new tax regime, such as B. the exemption according to § 10 para. 14, with the exception of the transport allowance for disabled workers, the transport allowance, the travel allowance, the daily allowance and the allowance for members of parliament / MLAs u / s 10 (17)), an exemption for underage children income of up to at Rs 1,500 for each minor child u / s 10 (32) etc.
That being said, Rana says if individuals don’t have sufficient funds to make an investment, or if they don’t want to make an investment to maintain liquidity, they should opt for the existing tax system rather than the new one Tax system, as the tax rates are more advantageous in the new tax system.
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