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Saturday, April 14, 2012

Get started your tax investments now

The financial year has begun and there's no better time to get started on your tax investments than right now. The most common mistake is that investors only wake up on the cut-off data given by their HR department to make their tax-saving investments when they should start at the beginning of the financial year itself. Focus on your financial goals and tax planning will happen automatically, as our IT Act gives tax breaks for everything from life insurance to savings. the biggest mistake is to look at financial goals, tax planning and investments separately.
Investors should start off by setting a target amount of their savings-and spend-for the financial year ahead.
 For instance, identify when your big cash flow requirement will come up during the year and where you will source the funds to meet it. Of course, the Rs 1 lakh limit under Section 80C is already crowded as it includes everything from employers provident fund (EPF) to investments in equity-linked savings schemes (ELSS). 
The ELSS continues to be an attractive option. The younger you are, the more equity-oriented should your investments be. Also since the EPF contribution is fully invested in debt, it makes sense for tax payers under 40 to put some of their 80C limit into equity with a tax benefit.
An investor who already has adequate exposure to equity should not invest in ELSS just fo tax break, especially if he can't afford the three year lock-in

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