Tip Tuesdays: It’s Generally a Great Idea to Avoid Making Last-minute Investments Just Because they Help You Avoid Paying Income Tax

It’s January. Your employer’s asking you to submit receipts for all those tax-saving investments you promised you’d make way back in April last. You know that if you don’t submit these receipts you’re going to have to pay additional income tax. For no reason, you don’t want to pay income tax. You look around and see everyone making a mad and frantic last-minute dash for ULIPs, ULPPs, ELSS, return-guaranteed products (the latest craze), and other exotically structured products guaranteed to make you poor. Everyone’s asking you: “Have you made this year’s savings?” Your mind plays tricks on you; you finally join this race, make a really lame investment, and then regret forever.

Here’s my advise:

  • Think long-term; not short-term.
  • It’s sensible to pay additional income tax this one year rather than being stuck with lame investments that require you to fork out large sums every year.
  • Your investments should be planned and should match your goals; last-minute tax-saving investments don’t do either.
  • Run away whenever you hear someone say “tax saving.”

What’s your experience been?

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment or use this form to submit your tip. And, as always, do spread the word if you find this useful.

3 thoughts on “Tip Tuesdays: It’s Generally a Great Idea to Avoid Making Last-minute Investments Just Because they Help You Avoid Paying Income Tax

  1. Dear Vinaya ji

    Thanks for your effort to teach us complicated financial issue in such a lucid language. We are all owe to you. I want to ask one question.
    I want to purchase appartment after 5 years. So, what would be the best option so that i get the money for downpayment. If i put this in PPF then the money will be blocked so should i go for the FD?

    If you kindly provide any solution then i will be grateful to you.

    Best regards,

  2. 1. Plan for your taxes in March, not for the year that is ending, but for the year that will start in a month
    2. Try to utilize all the options, I dont remember the section numbers and I dont care for those numbers too, just know them as 1 lakh limit, house loan interest, health insurance etc etc.
    3. Make sure you write these down and put dates or atleast months when you will make these investments. Spread the amount across the year instead of feeling the pinch in Jan – March next year and buy some screwed up product that you will have to invest for more years.
    4. Make sure to execute your plan and track them. Try not to miss any milestones, and if you miss then recalculate on how to make them up.
    5. Simplest would be to put a date say First saturday of everymonth to go buy NSC or deposit in PPF or may be a SIP from a good Mutual Fund.

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