The scope of tax^* planning is vast and requires precise understanding and attention. Ideally, you should have an efficient tax planning process in place well in time so that your savings and expenditures for the financial year are well planned. If you plan your savings and expenses adequately, you can easily take advantage of the several tax exemptions offered by the government to reduce your income tax liability.
 

Beginning your tax planning earlier in the year has several benefits. You have more time to explore tax-saving options in detail; you have a better chance to take advantage of all the features offered by the different investments; you can easily and comfortably invest in tax-saving options without burdening your finances all at once.
 

In India, the scope of tax planning allows you to take advantage of several tax-saving options, such as money savings plan, traditional insurance policies, mutual funds, Provident Fund (PF), National Pension Scheme (NPS), Fixed Deposits (FD) and more. You also get several deductions for allowances like HRA (House Rent Allowance), LTA (Leave Travel Allowance), etc.
 

The importance of tax planning in advance is that it allows you to make an informed decision and ensures that you reap the full benefits of the various tax-saving investments. Moreover, planning for taxes earlier in the year reduces your chances of slipping or making a mistake due to technical glitches.
 

Here are some reasons why you must take up tax planning earlier in the year and not wait till February:

• Avoid risks: 

  
  Waiting till February to save your taxes for the year is detrimental to the concept of tax planning. When you delay your tax planning this late, you risk being unable to claim the tax benefit for the year despite making the investments. 

  
  This could happen if the cheque you submitted was not cleared on time or if your tax-saving investment is rejected due to technical reason, incorrect details, or some other transactional error. Even though you can go invest again to claim the benefits, you might not have sufficient time to go through the entire process.

  
  Consequently, you would not be able to file for your tax benefit in the current financial year. To claim tax benefits, the eligible tax-saving investment must be made in the particular financial year, i.e., between April 1 and March 31, both dates inclusive. 




• Informed decision making: 

  
  The concept of tax planning is an intricate and critical process that requires full attention and detailed analysis. The scope of tax planning allows you to take advantage of several tax^* saving instruments such as savings policy, life insurance plans, NPS, PF, FDs, etc. However, each option has its advantages and disadvantages. Moreover, the terms of the contract differ for each investment type.

  
  Hence, as a wise tax planner, it is important that you conduct a thorough analysis and then choose the most suitable tax-saving instruments that fit your financial needs. You can only do this if you take up the tax planning process much in advance of the tax filing dates. This means you have more time to conduct an in-depth analysis.

  
  If you delay your tax planning till February, you will not have enough time to study your options in detail, and you could end up going into unsuitable avenues. 




• Cost-efficient investments: 

  
  When you begin your tax planning in advance, you do not have to make a hurried investment. Hence, you can skip opting for the lump sum option and instead choose for more systematic and planned investment options like SIP (Systematic Investment Plan).

  
  By opting to pay your premiums over time rather than all together, you can ease your financial burden and make cost-efficient investments. For investment options like a money saving plan from Tata AIA Life Insurance, you can choose to pay your premiums regularly as per your preferred frequency – single, annual, half-yearly, quarterly and monthly.
   

  TATA AIA premium payment flexibility ensures you can pay your premiums as and when you are comfortable without burdening yourself financially towards the end of the year.




• Make full use of investments: 

  
  Many people end up  buying a tax^*-saving like an insurance policy at the end of the financial year to save on taxes. Usually, this is done without gauging the pros and cons of the product. Buying life insurance is a good tax^*-saving investment decision, but tax saving is an additional or a side benefit of life insurance and should not be the primary reason for buying it.

  
  Similarly, for a money savings plan, the chief aim is to create a reliable income stream along with an insurance cover for unfortunate times. However, if you invest in this savings policy last minute, you defeat its purpose. You do not get any periodic income benefit, as well as the insurance policy does not function as a risk cover for unexpected events since the year has already come to an end.

  
  Insurance policies should be viewed as ansaving method.. Considering them only for the purpose of tax saving is a wrong practice and bad for your financial health. Hence, to ensure you make full use of your tax-saving investments, you should begin your tax planning during the initial part of the financial year.
   

Life Insurance as a Tax-planning Tool
 

Tax-free death benefit: Under Section 10(10D) of the Income Tax Act, the death benefits payable to your beneficiaries is exempt from taxes. This means that beneficiaries will not have to pay taxes on the money they receive from the death benefit, which can be a significant advantage.
 

Tax^*-deferred cash value growth: Some types of life insurance policies, such as whole life policies and savings plans, accumulate cash value over time. This cash value can grow on a tax-deferred basis, meaning that policyholders do not have to pay taxes on the growth of the cash value. This can be a tax advantage because it allows the policyholder to accumulate more wealth over time without having to pay taxes on the growth of the cash value.
 

Tax-deductible premiums: The premiums paid on a life insurance policy by a policyholder are tax deductible under Section 80C of the Income Tax Act, which means one's taxable income can be lowered by up to ₹1.5 Lakh each financial year.
 

Premiums of riders^#: Section 80D of the Indian Income Tax Act allows for tax deductions on premiums paid towards optional health riders and critical illness covers. A critical illness/health rider provides a lump sum or a percentage-based benefit in the event that the policyholder is diagnosed with a critical illness or any risk covered under the health rider.
 

It's important to note that the tax^* implications of using a life insurance policy can be complex and depend on the specific policy and the individual's situation.
 

Conclusion
 

Apart from planning your investments well, advance tax planning also enables you to present proper documents and receipts for claiming tax deductions such as HRA, LTA, medical allowance and others. In all, as a wise taxpayer, it is always beneficial to start your tax planning in time and avoid the last-minute tax filing scramble and eliminate the stress.
 

L&C/Advt/2023/Jan/0275