How to save income tax: Critical part of your financial planning? This is what you must do

How to save income tax: Your taxes are a big part of your liabilities and it is important to plan for your taxes in order to meet your financial goals. There are no two ways about the fact that effective financial planning cannot be without due diligence given to tax planning.

Financial planning is a method to manage your household budget. Financial planning is important to meet your financial and other goals. It also helps you meet any unforeseen or emergency happenings.

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Your tax liability could be a substantial part of the money outgo and could be crucial in determining your net worth. You should always be aware of your financial profile and have financial goals in your mind. You can then accordingly plan for your taxes.

Your taxes will be against the overall income that you make. Based on your income, you should start planning for your taxes. One should also try to look for ways where a person could save tax.

Always look at the tax advisories from time to time with regard to the investments or the assets that you have. That will give you insight into how you can effectively manage your expenses. By investing in instruments that offer tax savings and also give you income or security, you can save on tax and also utilize your income ineffective manner.

But one has to be careful in the investment that one makes as sole focus on saving some tax could lead to investments in unproductive investments. It investment could then become a liability. It is also important to pay your taxes on time. Unnecessary delays could invite penalty.

Never miss on your income tax filing. That could give you income tax returns. Even if it doesn't, it is a mandatory legal requirement.

Always remember that your tax liabilities will determine your net worth.

Your net worth has two components - your assets and your liabilities. Your net worth can be calculated by taking out your total liabilities from your total assets.

Your assets are the cash you have, bank balance, gold and other precious metals, property, company stocks, mutual funds, fixed deposits or ant saving scheme. Under the liability comes all your expenses, loans, EMIs, credit card and other bills and even your personal expenses. Even if you are living in rented accommodation, it falls under your liabilities.