Why you should plan tax at beginning of new financial year

In an interview to CNBC-TV18, Personal Finance Expert, Pankaj Mathpal of Optima Money Managers shared his views on tax planning.

Below is the verbatim transcript of Mathpal's interview with CNBC-TV18. Q: It's the beginning of a new financial year and for those investors who want to proactively begin doing their tax planning, what suggestions would you give? A: It is important to start planning now because one has the whole year to execute that plan. Planning is not limited to investment. Definitely, when one is planning for investment in instrument, which qualify for claiming deduction under section 80C, 80CCC or 80CCD etc, for that one should invest for example if one is investing in Public Provident Fund (PPF), it is better to invest at the beginning of the year instead of investing at the end of the financial year so that one earn interest for full year. Also Read: Last minute Tax Planning Tips Apart from that if one has sold any long-term capital asset in financial year 2013 and wants to save capital gained tax on that then one can invest that money in a new residential house. Capital assets like residential house or plot of land, commercial property or gold etc has been sold then to save the tax one will have to invest in a residential house. A person has two years time to invest that money in a new residential house from the date of sale, but before filing income tax return (ITR) because now one will file ITR for financial year ‘12-13. Therefore, before filing the ITR, if one is not going to buy a house then one should invest that money in a capital gain account scheme (CGAS) so that when later one want to buy a house, one can use that money. However, one cannot use that money for any other reason than buying the house, if one wants to save capital gain tax. Second, if one owns a joint property and a loan is taken on that and both the partners want to claim equal deduction in income tax towards payment of principal as well as interest -- usually equated monthly installments (EMI) will go from one account only, but other person who is not paying EMI should transfer 50 percent of EMI in the account of the person who is paying EMI to prove that both are contributing equally in that EMI only then both can claim deduction towards principal and interest. How can you save on house property taxes _PAGEBREAK_ Third, if one is a salaried individual and getting house rent allowance (HRA) in salary, but not paying rent and living with parents. If one wants to save tax on that HRA then enter in an agreement with parents provided they are in lower tax bracket or they are not paying tax in such case one can enter in rental agreement with parents and start paying them rent every month so that the HRA, which one receives, will be exempted from tax. Therefore, these are the things which can be planned at the beginning so that one can execute it throughout the year. Caller Q: I have invested in SBI Magnum Tax Gain Scheme and HDFC Mid-Cap Opportunities Fund and HDFC Infrastructure Fund. So, should I continue to hold it and invest more in these? I am holding these for last four-five years. A: Market is volatile; market has not performed well in the last couple of years. So, when you are seeing returns it is based on the underlying assets but some of their schemes have performed well. You are referring to SBI Magnum Tax Gain Scheme; the scheme has done well within the group. Now your horizon is four-five years and if you are thinking from tax planning point of view then you can go for ICICI Prudential Tax Plan or any other tax gain scheme. Even SBI is good, you can continue with that. However, if you are not thinking from tax planning perspective and you want to invest in open ended scheme then you should either go for ICICI Prudential Equity Volatility Advantage Fund. In this market it will be a good scheme for you and other can be a balanced scheme like ICICI Prudential Balance Fund or HDFC Balance Fund. So, considering the volatility of the market you should go for hybrid scheme now.