Avoid last-minute scramble, plan early: Experts

May 11 2016,

Pune: Chintamani was eagerly waiting for salary to land in his bank account to buy a new television in January this year. However, he was at his wit's end when as SMS sent by the bank showed a huge gap between what he normally gets and what he got for that month.

When he checked his salary statement, it hit him that the massive deduction was for the yearly levies that he owed in income taxes. Quickly, Chintamani made a dash from pillar to post to make good of his investments and submit the proof of the same to his employer.

Well, Chintamani is not alone. While data on the same is scarce, financial planners point out that a majority of the employees make their investments only in the last quarter (January-March) of the financial year. More specifically, most of them rush to make their yearly investments only in March, something experts call "an ill-advised move".
"In my experience, about 60-70% of the people plan their investments in the last quarter. The fourth quarter of a financial year is the biggest quarter for most insurance companies, which explains the trend," said Vaibhav Sankla, director of individual tax filing firm H&R Block.

The prevailing laws allow individuals to make investments of up to Rs 1,50,000 in different instruments under section 80C of the income tax act and claim tax deduction benefits to the extent of investments made. Simply put, if an individual makes an investment of Rs 1,50,000 in any of the available instruments, then he does not have to pay any taxes on this amount over and above the generally exempt amount of Rs 2,50,000.

However, it makes sense to make these investments early and not wait till the fiscal-end. "When people wait for the last quarter their objective is to somehow finish their investments and submit proof of the same to their employers. They do not see the merit of the product or the ability of it to meet their financial goals," said Suresh Sadagopan, founder of Mumbai-based Ladder7Financial Advisories.

That's not all! Besides picking up an unsuitable product, last-minute investments also mean that people lose out on the interest they could have otherwise earned during the particular financial year. For instance: A Rs 1 lakh investment in public provident fund (PPF) earns an interest of 8% per annum. If this is done in April (the first month), people get Rs 8,000 as the interest on March 31 of the subsequent year. When people wait till March, as many do, they end up earning close to nothing.

However, not everyone might have surplus cash of Rs 1 lakh in April itself. "One reason why people probably don't invest in the April to June period is because there are other expenses like schools fees, uniforms for kids that people have to pay for," said Rajendra Vartak, independent financial consultant from the city.

For such people, the second best option is to breakdown the yearly investment into 12-monthly instalments and pay the same systematically over the year.

"Whether it is a PPF or an Equity Linked Savings Scheme (ELSS), one should do it through a systematic investment plan. In such cases, there is no pressure or rush. Also, when people get bonus or incentives during Diwali or any other festival, they must channelize a part of that investment towards tax saving products so that they are not too burdened and at the same time get good benefits out of it," said Sadagopan.
Early or systematic investment, experts said, not only earns you good returns or helps you choose the right product, but also saves you the trouble of paying income tax upfront and later claim refund.

Source : Times of India

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