The Covid-19 pandemic has taken a heavy toll on the salaried class. Last year’s lockdown resulted in compensation cuts and possible job losses for tens of thousands of staffs. The pandemic and ensuing lockdowns have had a significant impact on employees in the informal economy. We have always believed that having additional money on hand is critical in the event of a disaster.
However, the epidemic has certainly reinforced this idea more than ever before for the new generation. Even experts agree that salaried people should learn from the pandemic and begin saving for a contingency fund. Lockdowns in numerous jurisdictions have once again caused consumers to hunt for ways to improve the monthly flow of in-hand cash in the new fiscal year. Proper tax planning can assist in this regard. Archit Gupta, Founder, and CEO of ClearTax advise clients to manage their income and investments to reduce taxes. This will result in them having more money on hand.
“The new fiscal year has begun, and you must manage your income and investments to save on taxes. Employers deduct relevant taxes from employees’ salaries in advance. If you expect your income to exceed the taxable limit, you must examine your overall expected income for the fiscal year and invest in appropriate tax-saving investments,” Gupta told FE Online.
Gupta went on to say that depending on your investment objectives and risk tolerance, you should choose investments that qualify for the Section 80C tax deduction of up to Rs 1.5 lakh per year. For example, he stated that a conservative investor should consider PPF or NSC, whereas an ambitious investor should consider ELSS, which invests mostly in stocks.
“Salaried employees who live in rented housing can claim home rent allowance or HRA. You are entitled to a tax deduction of up to a specified amount if certain requirements are met. Section 80D allows you to save taxes on health insurance payments, and you can deduct house loan interest up to Rs 2 lakh every year,” Gupta explained.Salaried people must provide tax-saving documentation to their HR department on time so that TDS is not collected from their pay checks needlessly. Only after receiving documentation tax-saving proof does the accounting department compute the taxes.
According to Sujit Bangar, Founder of Taxbuddy.com, the main lesson to be learned from the year 2020 is about disciplined investing. In 2020, powerlessness was induced by a lack of financial discipline. “When the future is unclear, only your past good actions of saving and investing will save you.”
In times of crisis, it is claimed that “cash is king.” As a result, Bangar believes that the primary goal of tax preparation in these times should be to secure more cash in hand so that cash can be saved.
Bangar advised that during this moment of lockdown, one should adhere to two principles:
• Plan your taxes in May/June and use a runway of 11–12 months for tax-saving investments to reduce the impact on your cash flow.
• Determine how much tax has already been avoided by inadvertently done things such as tuition expenses for children, etc.
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