News Desk | Tax-saving mistakes – The month of March is known as the investment season among industry professionals and agents. It is largely because most taxpayers forget about tax saving and tax planning in the remaining 11 months of the year.
There are many tax-saving mistakes that individual taxpayers make that increase their tax outgo. It is important to be aware of the common tax-saving mistakes committed by individual taxpayers and how you can avoid them.
Here are the 5 common tax-saving mistakes you should avoid:
Read also: Union Budget: Indian startups seek friendly policies, tax incentives
Mistake 1: Leave tax planning for last minute
One of the biggest mistakes taxpayers make is that they keep all the tax planning for March i.e. before the end of the financial year. This doesn’t leave you with a lot of headroom to look for better options. The rush in March is so maddening that insurance companies have declared it as the official investment season as companies make almost 20% of the revenues in March.
This is not a good practice. You should not look at March as the month for making tax-saving efforts. You should keep a long-term vision for your tax-saving efforts and make sound decisions accordingly.
Mistake 2: Only bank on investment for tax saving
Most taxpayers look at investments as the only medium that can help them save tax. However, it is important to note that several expenses can help you save tax. For instance, the expenses made on children’s tuition fees, health insurance for you and your parents, rent paid, donations made to registered NGOs, interest and principal paid on your home loan, etc can help you save tax in various sections of the Income Tax Act.
It is important to take note of all these provisions and act on your tax saving plan accordingly. This will help you get a broader picture of the tax you are liable to pay and tax-saving options that you can opt for.
Mistake 3: Ignoring terms and conditions
You should evaluate all the tax-saving options that are available before making a final decision. There are a few parameters like liquidity, rate of return, and level of risk that you should keep in mind before deciding on your tax-saving investments. For instance, there are a few insurance cum investment plans that have some complex terms and conditions which you should know like lock-in, penalty charges, etc. before you decide to invest.
It is important to read the fine print and be aware of the various terms and conditions before you decide to invest your money in any of the tax-saving options.
Mistake 4: Investing in insurance-cum-investment options
Aggressive marketing, lack of awareness, and push by agents or accountants are some of the key reasons why many individuals end up investing in investment-cum-insurance options. These are high on charges, low on returns, and have a high degree of risk involved. It is rather better to invest in term insurance and invest your funds separately in mutual funds, share market, or any other medium that you may prefer.
Endowment funds or money-back policies offer low returns and are often found wanting even to match the rate of inflation. Also, these come with a long-term commitment of investment i.e. of 10 to 20 years and any attempt to take out your money earlier would attract a huge penalty.
Read also: Tax benefits to increase disposable income likely in Union Budget
Mistake 5: Not diversifying the portfolio
Many taxpayers consider the tax-saving investments as the only investments that they need to make to have a financially independent and secure future. However, this is far from the truth. You need to have a diversified portfolio to walk towards a financially independent future. For instance, most of the tax-saving investment options come with a lock-in period and the returns are often lower than the other investment options that may be available in the market. As a result, it is important to have a diversified portfolio spread across various asset classes as per your investment and risk-taking capacity.
You can opt for investments in equity, debt, gold, real estate, insurance, etc. to have a balanced portfolio that can help you in financial growth.
The last word
These are some of the basic tax-saving mistakes that you can avoid. To make full use of the tax-saving options available, it is important to have a clear focus on the end-goals and evaluate all the possible options that can help you in your investing journey. Most importantly, do not leave it for the last minute and prepare your tax-saving actions well in time.
