Three areas to avoid the last minute tax rush

Arnav Pandya

A little bit of work on the tax front can save a lot of trouble in the last few days and weeks of the financial year. As the final couple of months approach for the financial year it is time for the individual to review some of the actions that they need to complete their tax requirements because this can cause a lot of trauma and trouble in the days ahead if left unattended. Here is a look at three important areas where it would be wise to ensure that the process is completed quickly.

Infrastructure bonds

There is an additional benefit of Rs 20,000 available as a deduction for individuals who put their money into infrastructure bonds under Section 80CCF of the Income Tax Act. This is in addition to the Rs 1 lakh deduction under Section 80C.  One of the common tendencies of people is to put off this investment till the last extent possible and this can result in a position where there is a last minute rush to meet the requirement. Investors should try and ensure that they actually complete the process over the next few weeks (In February 2012) rather than leaving this till March. One of the reasons why this needs to be done is due to the fact that there might not be some issue open in the last few days of March. The other point is that even if an issue is open it might not provide any choice for the investor and they would be forced to accept whatever is offered. In such a position it is better to choose something that actually benefits them.

Investment proof submission

For all those who are actually salaried individuals there are different internal deadlines for the submission of the investment proof details to their employers. This submission is important because the tax that is deducted each month from the income depends upon the investment declaration made at the start of the year and then its actual implementation. In such a situation if the details are not submitted on time then there would be a position whereby there would be an extra deduction of tax in the last one or two months. This might not be reversible in the last month of the year if the individual waits till the very end to complete their required investments and the end result is that the individual could end up suffering a higher amount of tax deduction which can take some time to come back as a refund.  This means locking up the money for some time which can be avoided by some action at this point of time.

ELSS investments

Another investment that falls prey to a last minute rush is that of ELSS funds that also has a deduction under Section 80C. A last minute rush is not the best way to make an equity investment. When it comes to these funds the investor needs to ensure that the investment is spaced out. The ideal way to invest would be for all the twelve months in the year right from the start of the financial year but this is often not possible. However this does not mean that the investor leaves this investment option right till the very end because then they end up raising the risk in the investment. This situation is that the investment is subject to a higher risk due to the one time investment that this will entail. On the other hand if there is some time that remains for the investment to be completed then it is easier to spread this out and hence also spread out the risk from the investment that will be witnessed. This will make a difference in the end result of the investment and hence can prove to be an important thing to consider.

Planning

It is vital that all aspects of tax planning is considered and that there is a specific thought process that goes behind any action. If this is not done and there are some hasty steps taken then it could result in a situation where future planning can also be impacted.  For example in the last minute rush taking an insurance  policy when it is  not required can lead to a position where for many years the premium payment will put a burden on the finances without giving the required benefit.

Arnav Pandya can be contacted at arnavpandya@hotmail.com.