Dos and don'ts of last-minute tax planning

You only have another day to make your tax planning investments for this financial year. The financial year ends on March 31 and the new financial year starts from April 1. It means you are cutting it too fine. That’s why we thought we would tell you why the last minute tax planning is dangerous and what are the things to remember if you want a smooth ride.

Always remember that mutual funds follow cut-off time to allot units. For example, mutual funds offer the NAV of the same date to equity mutual fund units if investments are made before 3 pm. The cut off time becomes very important when you are making the investments today or tomorrow. You can claim tax deductions only if your investments are gone through before March 31. If for some reason your investments go through on April 1, you can claim tax deductions only next year.

If you are planning to invest in tax saving mutual funds or equity linked savings schemes to save taxes, you should remember the following points. These schemes invest in stocks and they have high risk. So, invest in these schemes only if you can tolerate high risk and volatility. Two, these schemes with a mandatory lock-in period of three years. That means you can sell them only after the mandatory lock-in period. However, don’t get into ELSS funds with an investment horizon of three years. Equity is always risky in the short term. So invest in these schemes only if you have an investment horizon of five to seven years. If you can continue to hold your investments, you can hope to get double-digit returns from them.

If you are interested to invest in ElSS funds, here are our recommended schemes: Best ELSS funds

If you’re planning to invest literally at the last minute and for some reason you can’t invest in ELSS funds, you may end up with five-year tax saving bank deposits. If you’re walking into a bank branch, be careful. Bank officials mostly try to sell you insurance products. Mostly they are long term products. It is not simple to get out of these products – so be extra careful.

Last but not least, start your tax planning from the beginning of the next financial year. Start a monthly Systematic Investment Plan or SIP. This will help you to invest a certain amount of money every month. This will help you to plan your finances much better. It also offers financial discipline. However, keep in mind the new tax regime is going to begin from next year. Many taxpayers are planning to opt for it. Such people should remember that the new tax regime does not allow any deductions for investment in tax saving mutual funds. Keep this in mind while opting for the new tax regime.