January is about to come to an end, and with that there will be an obvious rush around in all the offices regarding tax saving proofs. The end of financial year is near and the tax-saving season is on, so here is a list of last minute tax saving mistakes you should avoid:
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1. Buying insurance without being thorough
When trying to save tax, a lot of us end up buying insurance policies/products that don’t really provide adequate coverage. Buying a term insurance policy does help with tax benefits but you need to be sure of the kind of coverage your policy is offering you. Your near and dear ones should be well protected (especially in case of any unplanned urgency), and getting a term insurance policy is a great idea but check all the features of the insurance product you are buying If in the last minute rush, you end up buying an insurance policy that does not offer enough coverage and poor returns, then there is no point of having saved that tax money at all. So, pick your insurance policy wisely.
2. Being less informed about your tax liabilities
What’s the biggest screw up you can do when saving tax? The answer to that would be, not being aware of how much tax you are liable to pay. There’s a difference between your taxable income and your gross income. Check the tax slabs and see what amount of your income is supposed to be taxed. Income includes – salary from service, business, capital gains from the sale of stocks or mutual funds, interest from deposits, gifts and awards, and so on.Some of it would be taxable but some could easily be excluded. Current income tax slab for AY 20190-20, allows all income below Rs.5 lakhs to be tax free, so either look into the calculations yourself, or take professional help form a CA and get your tax paying woes sorted.
3. No future goals whatsoever
Okay, let’s say you decide to save tax by investing in a tax-saving instrument. You see the high returns and decide you are definitely going to buy this instrument! Then, a few months after you invest you end up regretting the decision because so and so tax-saving instrument, had a 5 year lock-in period and you didn’t want to lock in your money for that long. The moral of the story is to make sure of the kind of returns your investments offer and if their maturity date aligns with your larger financial goals. Whatever be the case, invest in such a way that you don’t end up paying more taxes in future for instruments that help you in tax deduction in the present.
4. Not diversifying your portfolio
The one very common mistake people make is that they invest in instruments that offer tax deductions under Sec 80C and by that we mean, only under 80C. There is no diversification of portfolio which is a must when it comes to investment. There are various sections other than 80C that offer tax deductions like Sec 80E, Sec 80G, Sec 24B, Sec 80TTA. In order to create a diversified portfolio, make sure to invest in ELSS (Equity Linked Savings Schemes) funds that have good returns and low lock in periods. You can invest in PPF and tax saving FDs as well,in order to stabilise your portfolio thus creating a balanced effect.
5. Not planning in advance for the Financial year
This is not one of the last minute tax saving mistakes, rather it’s more of an advice for the next FY. The reason being that tax saving isn’t really a last minute activity, it needs planning in advance and execution without panic. You can start investing in tax saving instruments right from the beginning of the year and even make monthly installments. This way, the financial burden doesn’t fall on your head, all in the last minute. So, make tax saving plans in advance.
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