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How Last Minute Tax Saving Can Cost You Money... - Outside View by PersonalFN

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How Last Minute Tax Saving Can Cost You Money...
Mar 31, 2017

In another few hours from now, the Financial Year (FY) 2016-17 will end; but still, there will be many taxpayers who are yet to make tax saving investments.

Sometimes, the last minute rush can cost you a pretty penny, especially when it comes to tax planning.

And, what do you think can be a reason for such exceptional delay to invest?

Lack of availability of money would be the last reason. Rather, it's the other way round.

Those who can afford to invest Rs 1.5 lakh at one go, often dilly-dally throughout the year thinking they have a plenty of time to take advantage of tax exemptions. They get engrossed in their routine, the clock keeps ticking and days pass on one after the other. Come March, "lax investors" wake up to make investments.

The series of investment blunders begins here.

Are you wondering what can go wrong to start at the eleventh hour?

Here are some disadvantages of doing so...

By investing before March 31 doesn't enable you to claim the tax saving benefit, if there are transactional or operational glitches.

Suppose, you issued a cheque to make an investment in Public Provident Fund (PPF) on March 30 and for some reason, your cheque got cleared on April 01-i.e. on the first day of next financial year. Do you think you will be able to claim benefits u/s 80C of the Income-tax Act for the current FY 2016-17? You shouldn't take the banking system for granted.

Disadvantages won't end just with transactional glitches. You might end up investing in something that won't help you in any way. Bad tax saving investment options can do more harm than good to your portfolio in the long run. For instance, if you rush to your bank to make a tax-saving fixed deposit, you many not encounter any transactional issues since you hold a savings account with the same bank and probably have the net-banking facility. You will make a transaction within few minutes, but as you would know, the interest earned on tax-saving deposits offered by banks is taxable. Could you have saved this tax outgo? Yes, certainly, have you had opted for options such as PPF and Equity-Linked Savings Schemes (ELSS).

If you are a rich or gullible investor, you will always be a target for insurance agents and insurance brokers. They will create an impression that, none other than them understands your concerns. They will help you make investments that too on time. But will sell you products that earn them attractive commissions-and not the ones you will benefit from. This is applicable even in case of healthcare insurance. As you would know, u/s 80D you are allowed to claim income tax deductions for your premium payment towards healthcare insurance. Let's assume you would qualify for the cover without any medical test due to your age, good health and no medical history. But can you be sure that, you bought the most suitable policy? When you don't have much time to think prudently before making a decision, you often end up committing a mistake. In this case, you might buy a policy that has sub-limits on specified expenses. In the worst case, you may even purchase a policy from the insurance company that has a poor record of claims settlement.

What are the ways to avoid last minute rush?

  1. Don't follow your friends and relatively who might be waiting until the last few days of March to make investments. In fact, you could set the right example for them.
  2. Don't invest in hot-selling products or Star-rated funds, irrespective of who's recommending them. Try to identify the role of every financial product in your portfolio, before you commit your hard-earned money to it. Ideally, your investments should be in sync with your financial goals and risk appetite. Asset allocation plays a pivotal role in fulfilling your financial objectives. Therefore, never undermine the "product suitability."
  3. It may sound cliche, but nothing works better than investing regularly. If you start a Systematic Investment Plan (SIP) in an ELSS fund, it will make tax saving easy. Besides, offering benefits in taxation, your investments in ELSS can help you generate long-term wealth. Simultaneously, you can invest in PPF every month, and so on. While selecting an ELSS fund, consider its track record and be sure it follows sound investment processes and systems. In case you are still unable to decide on the scheme, don't worry. PersonalFN offers you unbiased mutual fund research services.

Last but not the least...

Tax planning doesn't work in isolation. You see, it's an integral part of one's overall financial plan. Your search operation for a trustworthy financial planner may end here.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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