Tax-planning disregarding financial goals and returns can be destructive

Updated: Monday, February 17, 2014, 11:06 [IST]

The financial year 2013-2014 is set to end in another couple of days and many of you must be rushing and pushing hard to reach financial advisors or Chartered Accountants to seek their advice on investments that might enable you save tax. But, those of you who on the basis of your own financial knowledge intend to save tax on your total taxable income in a particular financial year, need to do it in line with your long-term financial goals. This simply implies that long-term financial goals should be kept ahead of the annual tax-planning ritual that one indulges in or tax planning and tax saving regime should form part of the broader aspect to realize long-term financial goals.

Such a tenet holds relevant as in order to save few bucks every year, taxpayers bet on unsuitable investment options or invest excessively which they might not be in a position to honour over the years. For instance, as noted by financial advisors, taxpayers considering the benefit offered u/s 80C bet more on life insurance policies. And on account of too many life-insurance policies in their portfolio that though is a commitment to pay premium over the term is not honoured many a times and also in some cases does not meets the insurance cover requirement of the concern.

In an haste to conclude their tax-planning for the year, taxpayers are also seen betting on inapt investment options that they plunge in due to improper study in respect of the product. So, investment should be done backed by the relevant objective that it shall serve over the years or in due time. Unnecessary betting on investment products shall even be tedious for the investor to keep a track of and serve no end.

Other facet to the fact that is left unrealized many a times is that basic expenses and investment channelized in Employee Provident Fund schemes by individuals in service plus investment in insurance policies can in certain cases prove to be ample to provide relevant tax benefits. Such expenses include tuition fee of your child, principal payment on home loan etc.

So, tax-planning and correspondingly tax-saving should be done keeping in view your risk profile level, return consideration (efforts should be made towards maximizing post-tax returns) and long-term financial goals.

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