After budgeting, the most vital aspect of ensuring the longevity of your income is Tax Planning. It’s significance in ensuring your financial health is the reason that so many financial planning apps and agencies have dedicated tax planning services.

Tax laws are also known for being notoriously complex and convoluted. Meaning, the only way to ascertain the full scope of the liabilities and exemptions that you are eligible for is to work closely with an expert. 

That being said, the Indian Government offers several schemes and specific exemptions that you, the individual taxpayer, can benefit from. Each financial year, changes are made to these schemes and exceptions to better orient them with the economic situation. By accounting for all these factors, you can kick off the new year with a smart financial plan designed to maximize your tax benefits! 

Here are a few things to keep in mind when planning your taxes:

1. Maintain a personal balance sheet

Tracking your long-term and short-term expenses by the month is a crucial part of any move towards financial planning. As a salaried individual, it helps you maximize your income, as well as, to narrow down the potential exemptions and tax benefits you are eligible for. A personal balance sheet also comes in handy when reviewing your investment portfolio to determine what assets to keep and what assets might stagnate or turn into liabilities in the coming financial year. Several apps make this process a whole lot easier by allowing you to key in your particulars on the fly, categorize them, and automate their tracking.

2. Divide your income

When considering tax planning as an individual with an income, salaried or otherwise, it becomes clear that the more money you make, the more tax you pay. With a little planning, a salaried professional with an additional rental and interest income can fraction the multiple streams of revenue to show different recipients for each; thereby, availing the varied exemptions applicable to each and saving on the overall tax liability. For example, you can register a Hindu Undivided Family and show the HUF as the recipient for an FD to avail a significant tax benefit on the amount.

3. Diversify your investments

Always create an investment portfolio that looks into Mutual Funds, Fixed Deposits, shares, and so on to maximize your return and minimize the risk. Be smart about your investments. Calculate the total tax liability across all existing income streams to assess the total saving required to reduce the proposed tax. Once this is set, look for options with a fine balance between risk and return and invest until you hit that target.

4. Keep updated on tax exemptions

To encourage financial planning, the government of India facilitates deductions on specific types of investments. With every budget, the scope of the tax benefits offered by the government through these exemptions keeps shifting. With the new year already here, the new financial year is just around the corner. Keeping updated on any policy shifts in the upcoming financial year is vital to align your investments with your tax-saving instruments, and in doing so, maximizing your tax benefits.

5. Maximize personal investment benefits

Many tax deductions offered by the government are centered around investments in personal and familial health, education, and general well being. The interest paid on an Education Loan as well as a Home Loan is deductible from your overall tax liability. Deductions can also be availed on the premium paid for your health insurance, with additional benefits if you pay the premium on behalf of your parents. While the specific caps and deductions might vary with each financial year, these are likely to remain consistent avenues of tax benefits.

6. Expand your use of financial instruments

There are several sections under the Income Tax Act that benefit the individual looking for tax-saving instruments. While Section 80C (investments) is the most commonly tapped of these, there are many other tax-saving provisions under the Act that serve to maximize your tax benefits. Some that deserve mention include:

• Section 80CCD – Government Pension Scheme
• Section 80GG – House Rent Allowance
• Section 80G – Charity and Relief Funds
• Section 80GGB – Political Party Contribution
• Section 80D-Health insurance

7. Work with a professional

The sheer magnitude of Indian tax law can be quite overwhelming for any individual citizen. Availing the help of a tax expert will help you better understand the full scope of your liabilities. Working with a professional while planning out your finances will also offer you a clearer idea of the governmental schemes and exemptions at your disposal, that is most suited for your specific financial circumstances.