Don’t Wait For March: Start Your Tax Savings T0day

by Dhirendra Kumar CEO, Value Research

The income tax planning time of the year (2012-13) is here. No, you did not read that wrong. I know that investors start planning their income tax-saving investments in January or February or even March, with some brave subset believing that the right time is around March 28th.

Dhirendra Kumar

Right time to start..!

However, the right time to start planning (and acting) is now, in April. Financial decisions made in haste are almost always wrong. When the year is ending, decisions get driven by which salesman calls you first or whether you can get a receipt quickly enough to show to your office accountant so that he does not deduct TDS (Tax Deduct at Source) out of your February salary.

Given that all tax saving investments have long lock-in periods by design, the effects will linger for many years.

If, for convenience alone, you end up putting into PPF (Public Providend Fund) money that could have been put in an ELSS (Equity Linked Savings Scheme) Mutual fund, the difference between a 3 year and a  15 year lock-in alone could make the tax-saving not worth the while.

This time, do your savings a favour. Plan now, and start your tax savings now. It will not only lead to lower stress &  better choices, but also to better returns and/or effectively shorter lock-ins. Here’s how. Take equity investments first which would be in the form of ELSS mutual funds. The best way to invest in these is through SIPs (Systamatic Invesment Plans) and the worst way is to hurriedly put in a lump sum at the end of the year.

ELSS SIP investors..!

Past year, ELSS SIP investors would have invested at an average Sensex level of around 17,500. Someone waking up in February or March would also have gotten the same level this year but that’s just a coincidence. It could have been higher or lower also, but the point is that if you don’t invest till the last moment, then you are leaving a lot to luck.

That’s as far as equity goes, but for all equity and debtbased investments, there’s an interesting advantage of an earlier end to the lock-in. Remember, the lock-in period starts from the date of investment and not from the end of the financial year. Which means, if you have the money now, you might as well make your PPF or FD (fixed deposit) investments now.

Investing in April 2012 will mean a lock-in period that will end almost a year before investments made in March 2013.

The Rs 20,000 tax break from infrastructure bonds (80 CCF) has disappeared. But, there’s a new tax break available in the form of the Rajiv Gandhi Equity Scheme. However, the details of this scheme are not yet announced and therefore investors have no choice but to keep waiting. One hopes that the government will announce the details as quickly as possible and the scheme will get operationalised. No matter what the final shape, any long-term equity investment should be done gradually to take advantage of a lower average price. As such, it would be important for investors to have many months to understand the scheme and then invest under it systematically.

Of course, the government doesn’t itself follow such sensible, act-early principles in its own stock-market related activities.

Clearly, whether you are the ruler or the ruled, you can not afford to wait till the 11th hour to get cracking on investments.

The 2012-13 financial year has already started, and so should we on our savings, taxes &  investments.

- Dhirendra Kumar CEO, Value Research

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