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Money Matters

Tax Savings | Why is January, February, and March Important Months for Savings Tax | YES BANK

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Often people consider tax-saving synonymous with confusion and complication. Hence, in most cases, they keep pushing their annual tax filing until the very last days. But that is not a wise approach. Even though the Income Tax Department generally extends the Income Tax Return (ITR) filing deadline (this year it is November 30, 2020), it is advisable to begin your tax planning as soon as possible.

Ideally, you should have a robust tax-saving plan ready and execute it across the whole year. However, in reality, most of us scramble during January, February and March for some last-minute tax-saving investments, making these 3 months crucial for saving tax.

  • Last months of a financial year: For ITR calculations, your investments made between April 1 and March 31 of the following year are considered. If you do not invest in your chosen income tax-saving investments by March 31, it will not fetch you any tax advantage, even if the ITR filing date is in July or extended further. Hence, you must make your tax-saving investment well in advance in January or February, so that can be executed before the end of March. This also helps to avoid transactional or processing glitches like incorrect details, non-clearance of cheque, technical errors, etc. So, overall remember when investing for saving tax, the date of investment should be inclusive in a financial year.

  • Best time to invest in tax-saving options: January is the first month of the new year, signalling a fresh start. It is the beginning of all financial transactions to be carried forward into the new year. Hence, this is the perfect time to begin your financial-resource building. You have some time at hand to read all policy terms and conditions properly and then make an informed decision about your tax-saving investment. However, tax investments made last-minute usually are unsuitable avenues that offer mediocre rates. So, be careful with agents that disguise unsuitable insurance policies to only help you save taxes in the last-minute.

  • Historically more profitable months: A new year often accompanies positive emotions and this, in turn, promotes the growth of the stock market. Historically the initial months of a year (which are the end of a financial year), most importantly, January, have been good for the stock market. The same trend was observed in January 2019, which was the best among the last 30 years.

Overall, the three months of the beginning of a new year or the end of a financial year are very critical in wholesome tax planning.

However, as mentioned earlier, it is advisable that you start your investments well in advance, preferable from April or May itself, to avoid last-minute goof-ups. When you begin your tax planning journey in advance, you are not required to invest in a lump sum. You can begin your investment journey with limited funds, such as a SIP (Systematic Investment Plan). By opting for a SIP mode, you invest periodically rather than investing all at once. You can even choose the frequency – weekly, monthly or quarterly, according to your budget. Thus, investing early is highly cost-efficient, as well.

Some advantages of early investments include:

  • Availability of multiple options to invest your money.

  • Plenty of time to assess options to select the right tax-saving investment to build your financial corpus.

  • Possibility of more income tax saving on investments like mutual funds and Unit Linked Insurance Plans (ULIPs).

  • Explore all viable, tax-saving options under Section 80C and 10D and choose the one which best suits your financial needs and budget.

  • Reap the benefit of features likes SIP. Such investment options are also viable in case of shortage of funds.

Be a wise planner and always start your tax-planning journey well in advance.

Visit YES BANK's website to know more about Savings Account and NRI Savings Account.

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