Advantages of starting investments in January
Here are some benefits of early year investments –
1. The motivation to start fresh
The new year brings with it the motivation to make good resolutions that can last all through the year. In January, you might be motivated to start good financial habits and saving and planning taxes can be one of them.
2. Time to plan
As January starts, you have three months to plan your taxes and invest in tax-saving avenues. This gives you time to compare, assess and then choose suitable investment options that not only save tax but also help you create a corpus for your financial goals.
Moreover, when you have time, you can consult tax experts to learn about the different tax-saving options available for you to lower your taxes.
3. No risk of rushed decisions
Last-minute tax planning can lead to rushed decisions which might be erroneous. In January, as you have time, you don’t have to rush. You can carefully assess and analyse the investment options and make an informed decision to eliminate the possibility of mistakes.
Tips for saving tax
While January is a good time to start planning your taxes, here are some options that you can consider to save tax –
1. Buy life insurance
Life insurance plans act as a financial safety net that helps you create a financial corpus for life’s unexpected eventualities. It can provide your family financial assistance in your absence so that they can meet their financial needs with ease. Life insurance plans can, thus, be an important risk mitigation tool in your portfolio.
Besides helping you plan against unforeseen events, life insurance plans also help with tax savings. The premium paid for the life insurance policy qualifies as a deduction under Section 80C up to ₹1.5 lakhs4(under the old tax regime) Moreover, the death or maturity benefits (subject to conditions mentioned therein) received are also exempted from tax under section 10(10D)5, making life insurance a suitable choice for financial protection and tax planning.
Moreover, with the different types of plans, you can choose a suitable life insurance policy for a specific financial goal. For instance
- Term insurance plans help you plan against the risk of premature demise
- Endowment and money-back plans can help you save and create a corpus for any financial goal
- Child plans can help you create a secured corpus for your child’s future needs
- Pension plans help you in retirement planning
- Unit Linked Insurance Plans (ULIPs) can help you earn market-linked returns on your premiums along with offering insurance protection.
2. Claim the available deductions.
Chapter VI A of the Income Tax Act6 offers a range of deductions that can lower your taxable income which results in a reduced tax liability. You can use these deductions, ranging from Section 80C to Section 80U, and reduce your tax liability considerably (under old tax regime).
3. Choose the right tax regime.
The government introduced a new tax regime in the Union Budget 20207. Usually, under this regime, you can enjoy lower tax rates and a higher tax-free income threshold7, but you need to check your taxability under both regimes before filing. However, most of the deductions and exemptions available under the old tax regime have been foregone. As such, you can compare your tax liability under both the old and new tax regimes and suit one that offers the lowest tax liability.
Plan ahead and maximise tax savings.
Don’t wait till March to start investing in tax-saving avenues. Start early and get time on your side. Remember, the early bird catches the worm. So, start saving in investments that offer tax benefits so that you can plan your taxes from January itself.
FAQs
1. In which month do employers deduct tax from salary?
Employers deduct the expected tax from your salary every month before the salary is credited.
2. Why is tax saving needed?
Tax saving is important to allow you to use the available income tax provisions to your advantage. With tax savings, you can reduce your tax liability and save more. Enhanced savings will give you a higher disposable income to invest so that you can create a good corpus for your financial goals.
3. What is the last date for investing in tax-saving avenues?
The last date for investing in tax-saving avenues is 31st March which will allow you to enjoy a reduced tax liability in the same financial year. If you invest beyond 31st March, such investments will qualify for tax savings in the next financial year.
An ISO 9001:2015 
