The earlier you plan your taxes the more you save! Every salaried individual is liable to pay taxes that are imposed on income and gains arising from other sources. Taxes occupy a major chunk of your hard-earned money. But there are tax sops available for citizens to avail during income tax return (ITR) filing. However, it isn’t a new mystery that in the day-to-day hustle and bustle chances are that many taxpayers end up in a last-minute rush for claiming these tax benefits which can lead to the possibility of errors. Thereby, it is required to have systematic planning to save more on taxes.
Tax planning is among vital measures for financial planning as the main objective is to reduce tax liability at the fullest and maximum level to save more on hard-earned money while simultaneously adhering to legal obligations and requirements. Timing is among the forefront factors that matter while doing tax planning! With the year 2023 in full swing, let’s understand how to plan your taxes and why is it important to begin in the initial days!
For the fiscal year 2022-23 (the assessment year 2023-24), the last date for filing ITR is set on July 31, 2023.
Abhishek Soni, co-founder & CEO of Tax2win, a Fisdom company explains that taxes eat up a large portion of your hard-earned money if not planned well. Unfortunately, this saying is very accurate for cases where even after knowing that tax payments are mandatory, we wait until the eleventh hour to undertake the tax planning process.
Tax2win CEO added that tax planning is essential for all investor’s financial plans. A tax planning practice can help you reduce your tax liability and save hard-earned money. The ultimate aim of tax planning is to adhere to tax efficiency.
Here are 10 key steps to plan your taxes and minimise your tax outgo as per Tax2win CEO:
1. Start Early: Planning on taxes at the last minute may lead to costly investment mistakes. Early tax planning is always beneficial as it is when your tax investments and expenses start.
2. Choose a Tax Preparer: If this is the first time you file ITR, ensure the tax preparer you choose is educated enough to handle your tax files. If you already have a Chartered Accountant, meet him in person at least a few weeks before the end of the financial year so they can suggest any further scope for lowering your taxes. Many tax filing companies also offer you to file taxes yourself by following a few steps and providing relevant information. These fintech companies can also help you with their experts or CAs that can guide you from level 1 to further.
3. Gather all documents: The documents required to file ITR should be gathered beforehand like salary slips, Form – 16, Form16A/ Form-16B/ Form- 16C, Form 26AS, Interest Income docs, and Other Interest Certificates, Home Loan Statements, Details of Investment in Shares, Proofs of deductions and investments that can be claimed under section 80C, 80D, 80E, 80TTA, etc and others.
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4. Selecting the right tax-saving option for you: This method is beneficial as it helps you achieve your financial goals in time. There are numerous tax-saving options under Chapter VIA of the Income Tax Act, 1961, and beyond that. Choose the one that fits you well as per your investment strategy and risk appetite. In addition, many tax planning optimizer tools are available on tax filing sites that can also help you select the right tax-saving option.
5. Compute the Gross Total Income: Under this step, you have to list the total income earned during a financial year from various sources like-Salary, IOther Sources (various types of interest income or dividend income are included here), Capital gains, House Property, Business or Profession, etc.
6. Compute the Net Taxable Income (NTI): Under NTI, all the deductions under chapter VIA which are eligible for you under Income Tax Act, are accounted for. This step helps you to reduce your taxable income. Deductions like 80C, 80D, 80DDB, etc. are deducted from gross income to calculate NTI.
7. Calculate your tax liability: If you have earned income or generated properties from somewhere, you will have a tax liability. By claiming deductions, and exemptions you can reduce this liability. Calculating tax liability can turn out complex for you therefore there are multiple tax filing companies who with their experts and CAs guide you step-by-step online or do it themselves on your behalf. These companies have introduced income tax calculators too wherein you can quickly understand your tax liability.
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8. List down all the major expenses or investments you made.
9. Stay Updated about any changes in Tax Laws.
10. Keep a copy of your previous year’s return file ready.
