4 Tax Planning Moves You Should Consider Before the Year-end of 2022

Dec 19, 2022 / Reading Time: Approx. 9 min

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As the holiday season begins, its easy to overlook the finer details of financial planning, such as tax planning. Paying taxes eats up a significant portion of your savings, and this scenario occurs if you are not fully aware of the benefits that can be obtained from effective tax planning. Tax planning is an essential part of the financial discipline one must follow for financial wellbeing.

Ideally, to minimise the tax burden, you should avoid resorting to last-minute tax-saving exercises; it can lead to impulsive decisions, and you may end up losing out on the opportunity to implement an effective tax-saving strategy, which may also lead to insufficient tax savings and stress.

Since tax season is just around the corner, there isn't much time to invest in tax-saving instruments and lower your tax liability. Your tax obligations can be reduced by using the appropriate deductions allowed by various sections (80C, 80D, 80CCD, etc.) of the Income Tax Act 1961. While it may be months before you file your 2022 taxes (the deadline for filing is July 31, 2023), now is the ideal time to make wise tax planning decisions for the upcoming FY 2022-23.

Take advantage of year-end strategies to reduce your next tax burden before it is too late. Whether you make a charitable donation, fund your retirement account or review helpful tax deductions, taking these small steps now can make a big difference when filing your ITR for FY 2022-23.

4 Tax Planning Moves You Should Consider Before the Year-end of 2022
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The following are 4 key tax planning moves you should consider before the year 2022 winds down:

1. Estimate your taxable income in advance

Every individual may have an idea about the approximate annual income they hold for a financial year. An estimate of how much income you will have at the end of the financial year can help you find out your expected taxable income and amount. Using these legitimate tax-saving tools, you can identify ways to lower your tax liabilities. When you evaluate your real income and expenses at year's end or just before tax season, you can change your tax-saving strategy as needed.

For instance, if you had a taxable income of Rs. 10 lakh last year and you estimate growth in net income by 20% this year, then your taxable income may also increase in a similar proportion. Thus, you must consider making a tax-saving plan as early as possible to avoid the last-minute hassle.

Since your income will rise in comparison to the previous fiscal year, you should increase your investments or take other necessary action to offset your tax obligations for FY 2022-2023. If you do not keep a periodic watch on your expected tax liability, it will be difficult for you to make huge investments in tax-saving instruments at the end of the financial year, and you may risk making hasty decisions.

2. Identify which tax bracket is applicable to you

Once you have your projected net taxable income for the fiscal year 2022-2023, you should think about determining which tax rate applies to you. This will enable you to analyse the situation and evaluate if you will be subject to higher or lower tax rates. It also depends on whether you choose the old or new tax regime.

Table: Income Tax Slab Rates for FY 2022-23 for Individuals below 60 years

Net Taxable income Old Tax Regime Income Tax Slab Rates New Tax Regime Income Tax Slab Rates
Up to Rs 2.50 lacs Exempt Exempt
Rs 2.50 lacs - Rs 5 lacs 5% 5%
Rs 5 lacs - Rs 7.50 lacs 20% 10%
Rs 7.50 lacs - Rs 10 lacs 15%
Rs 10 lacs - Rs 12.50 lacs 30% 20%
Rs 12.50 lacs - Rs 15 lacs 25%
Above Rs 15 lacs 30%
(Source: www.incometax.gov.in)

You can identify whether you are in a higher or lower tax bracket by determining your tax bracket based on your anticipated taxable income for the year. This will help you properly prepare to minimise your tax liability and manage your taxable flows.

When filing your ITR for the fiscal year 2022-2023, if you expect to be in a higher tax bracket, you may want to make the appropriate changes to your investments or tax-deductible expenses. In contrast, if you fall under a lowertax bracket, you may consider paying tax-deductible expenses now while they are still valuable to you and do not create a higher tax burden.

3. Keep relevant tax-related documents safely in one place

The Income tax department (ITD) has launched a new e-filing portal on June 07, 2021, i.e. www.incometax.gov.in , to provide convenience to taxpayers and speed up the processing of income tax returns. The process of filing your income tax returns requires some preparation. The government allows you a period of four months after the end of the financial year (on 31st March) to compile all your documents, such as income details, Form-16, bank statements, older tax statements, etc.

You may spend money during the financial year on things for which you can make deductions and save on taxes. As a result, it's important to have all of your receipts and bills on hand. Maintaining a journal for these transactions or keeping them readily available in your mobile apps will help you when it comes to filing your taxes. Important documents that may be needed as proof when claiming deductions under the eligible headings include medical bills, travel expenses, etc. To avoid last-minute difficulty and successfully complete your tax filing process, make a specific list of the documentation required for filing an ITR.

4. Review your tax-saving investments

Once you estimate how much tax liability you may incur at the end of the year, you can accordingly plan or make changes to your investments and expense to save tax. Early tax planning will allow you more time to find and choose effective tax-saving instruments that can increase your liquidity, provide a higher return at a lower risk, and help you achieve your financial goals effectively. Rather than just randomly investing in ELSS mutual funds or other tax-saving instruments recommended by your tax professional at the time of filing an ITR.

Some of the popular tax-saving instruments include National Savings Certificate (NSC), Public Provident Fund (PPF), National Pension Scheme (NPS), Equity Linked Savings Scheme (ELSS), Unit Linked Insurance Plans (ULIPs), Principal Amount for Home Loan, Fixed deposit for five years or more, Unit Linked Insurance Plans (ULIPs), Sukanya Samriddhi Yojana Account etc. You may invest in them as per your suitability.

Capital gains arriving from the sale of mutual funds, dividends received on shares and interest earned by investors on bank deposits, post office savings and deposits with non-banking financial transactions are all taxable. Currently, long-term capital gains on shares and mutual funds in excess of Rs 1 lakh a year is taxable at the rate of 10%. Dividends, interest and short-term capital gains are added to income and taxed at the marginal rate applicable to the taxpayer.

Do note that non-declaration of such income from capital gains by you could get you in trouble as the tax authorities will have complete access to any gains you have made. Thus, before filing your ITR, ensure you review your investments thoroughly to make adjustments and have a rough estimate of the gains you have realised.


To conclude...

Planning your taxes wisely might not only help you reduce your tax burden but also boost your income. Tax planning can help you to save a good amount of money in the long run. With smart tax planning, you can enjoy your income to the fullest and achieve your financial goals as well.

Many taxpayers are constantly looking for effective strategies to reduce their tax liabilities but make some obvious mistakes, such as keeping tax planning for the last minute. Thus, it is prudent to consider this year end and New Year's Eve as an opportunity to overlook on your tax-saving strategies for FY 2022-23 and make efficient adjustments.

PS: If you are not sure about how to exercise your tax planning, save yourself from the last-minute stress and initiate your tax planning with the help of PersonalFN's Definitive Guide to Select ELSS (Edition 2022).

This Guide will show you how picking a worthy ELSS, a tax saving mutual fund, that could potentially maximise your wealth and act as an effective tool for tax planning. If you are looking to invest in ELSS funds, then Subscribe now! To PersonalFN's Definitive Guide to Select ELSS (Edition 2022).


Warm Regards,
Mitali Dhoke
Research Analyst

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