Come January and you brace yourself for the stress of tax planning. One would think that instead of having to save Rs 1 lakh, you have to give it away. Why else would this annual routine cause so much panic? Actually there is a reason—confusion. A part of it stems from the system: there are too many instruments to choose from (which should be a good thing), several exemption limits, special rules, etc. The other part stems from inadequate planning; most taxpayers pack into one month what should ideally be done over a year.
If you are wringing your hands over how to maximise tax benefits in the little time that is left, the following pages are all that you could have asked for, and more. We begin with a list of options covered by Section 80C along with their features. The next section deals with the mother of all tax-saving problems: selecting the instruments that suit you the best. The decision is difficult; you must consider your risk profile, asset allocation, goals, etc. Use the strategies we have formulated for our case studies to find out which one works best in your financial situation.
Finally, we decipher the draft Direct Taxes Code, which seeks to do away with the system's flaws responsible for your confusion. More importantly, if ignored now, the code can upset your long-term plans. Though it is still a draft, factor in the suggested changes so that you err on the side of caution rather than ending up with more reasons to panic next year.
If you follow our advice, there should be no need to repeat the ritual at all. Just promise yourself that in 2010, you will invest in tax-saving products regularly.