5 Tax Saving mistakes we should avoid


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Income tax has become an indispensable part of one’s life, so much so that any income we earn is automatically deducted in our heads to adjust for taxes. 

We work really hard to Save & Earn money, and paying money for any other purpose than self-use just seems like a waste, if not a downright pain. Though, if you think about it, paying taxes is also not totally a selfless act we commit.Having said that, it is only natural for an individual to want to Save Money wherever possible. Assuming one would also want to save as much money as possible when it comes to paying taxes, people generally are largely ignorant of various tax saving measures available to them. 

What is tax saving?

As the term itself suggests, Tax Saving is the amount of taxes that we are either automatically exempted from paying by statute on an investment we make. Or income we earn or taxes saved by way of making use of several tax saving options by investing in them. There are quite a few investments that one can make which are tax deductible, i.e., are exempt from paying taxes on, or have negligibly low tax rates. 

These investments avenues/schemes are mostly provided by way of policy decisions by the central government, put in place for the public to avail tax benefits on them by way of less/no tax rates. Examples of such investments include PPFs, Life Insurance Plans, National Pension Scheme, and even loans like education and housing. At the time of repayment of loans, the interest component remains tax deductible, further enabling individuals to Save Money.

As great as tax saving/tax deductible investments may seem, people tend to overlook these investments or may simply not be aware of it. In addition to not making these kind of investments, there are quite a few mistakes that people commit while in an effort to save tax. 

Let’s have a look at a few of them and how best to try and rectify those mistakes. 

Oops! Did we miss something? 

It is only in the recent past, going back to maybe about a few years that attention was being paid towards developing public awareness about the benefits of spending/investing money. Governments and various banks/financial institutions have been making serious efforts to make the otherwise prudent Indian public spend money which will boost manufacturing and/or invest money with a view to Save, Invest & Prosper by way of saving on taxes. 

This, however, is only possible if one makes a diligent study of the options available for the purpose of saving tax and identifies those which are most suitable to one’s pocket without compromising on the other essential necessities which require funds so as to enable a family to be run smoothly.

A stitch in time saves nine! 

An inherent trait that humans possess is that of a tendency to procrastinate. Ideally, what can be done tomorrow should be done today in order to avoid any disasters later. 

This is not the best method to go by when it comes to Tax Saving. There are many dangers and pitfalls to look for when making investments with a view to save tax, and if rushed, one may end up in investing in the wrong kind of scheme that may end up costing you more money instead of saving it. 

 

In order to avoid this, one must not only not wake up in the last quarter of the financial year and actively keep looking for investments and ways to avail benefits from tax deductible investment avenues. 

Save & Earn by investing in tax efficient schemes

Tax efficient schemes, like investments made in PPF (public provident fund) are eligible for tax deduction and at the same time the interest earned out of them are tax-free. In contrast to these schemes, there are certain kinds of investments like FDs that may not be a good Money Saving Idea insofar as tax saving measures are concerned as the income earned on these investments is taxable, making them tax-inefficient.

Here, one has to keep in mind that there are several other options like investing in health insurance, benefits out of HRA, investing in schemes that are EEE (Exempt, Exempt, Exempt) instead of EET (Exempt, Exempt, Taxes).

A prudent investor has to weigh in all these options and invest his money which suits his budget as well as needs. 

Do not take loans to Save, Invest & Prosper

Never take a loan to make tax-saving investments. The interest you pay on personal loans could range from 15-25%, which can potentially negate tax benefits as well as any returns on the investments. If you have to use your credit card to make these investments, ensure that you clear the bill within the due date. Use it only if you are confident of discharging the payment well in time.


Why shy away from Equity Linked Saving Schemes

The equity-related risks that ELSS funds come with often turn investors away from them.

Taxpayers are not prepared to take market-related risks and opt to invest in fixed income investments like PPF and FDs. But this is a mistake because only equity can generate inflation-beating returns. And this is why Sqrrl has come up with a quick solution to help you save taxes and get high returns from equity.

Here’s how you can use our app to invest in ELSS & save up to Rs 45,000 on Income Tax. Download our app here.


In all probability, people are generally unaware about these tax saving methods. They may not have done their research and don’t know that there are quite a few legal avenues that one can explore in order to pay less taxes, and this is called tax saving. Hope we could be of some help to you! 


 

Written by

Vedant Kaushik