5 Tax Saving Mistakes and its Solutions

Today earning money is the most important part of our life and it is also right to say that saving it is also as important as earning.

The best way to save the money is to get the advantage of tax saving deductions means to minimize the tax outgo as much as it is possible. But to apply it in real life is tougher then saying, because a common man performs a lot of mistakes during performing tax saving techniques. So below mentioned are 5 major mistakes which are performed on regular basis:

  1. Taxes Saving Investment are delayed:

Systematic Investment made during the year leads to build the good investment portfolio. But the person those who are unaware of taking tax saving deductions tends to get hurry at the last minute. Tax-saving investments made at the last moment will not results to a greater or we can say full benefit.

How to avoid it:

  • To get the full benefit of this scheme a person should start investing in the beginning of the financial year in tax-saving and create a diversified investment portfolio.
  • Regarding the investments, give a deep thought and take the most benefit of it.
  1. Investing in Tax-Inefficient Schemes:

Fixed Deposits (FD) and National Saving Certificate (NSC) are the long-term investing methods which are most commonly used as the tax-saving strategy. The interest which is earned by a person on both Fd’s and NSC’s are taxable, but he can claim ones only on the investment.

  • Investments made in fixed deposit and recurring deposits must be kept separate from the tax-saving schemes like PPF and other pension schemes, so that a person could get the benefits up to its higher level.
  • Interest earned on PPF is tax free and also the investment made in PPF is eligible for tax deduction.

How to avoid it:

  • Distribute a part of your portfolio in the equity investment scheme, so that a person is able to save tax and also results to earn higher returns.
  • Invest in good tax-saving schemes, after considering your financial goal, risk appetite and age.
  1. Ignoring expenses that are tax-exempt

Responsible and Aware man can get the benefits in many cases and to be an ignorant person is the biggest foolishness of him.

There are many tax exemptions which a person can avail by making an investment in health insurance premium, children’s tuition fees, house loan payment, house rent etc. A person can get income tax return; if he is unable to get House Rent Allowance (HRA) from the employers then he can claim the deduction up to Rs.2000 per month. Most of the people are unaware about the many tax deduction techniques like medical expenses, interest on housing and educational loans, expenses made towards the social donations etc. Moreover they tend their limit about the tax-saving investment up to the declaration to Section 80C only.

How to avoid it:

  • Get up to date about all expenses that lead to tax deduction.
  • Deductions under Section 80C must be enjoyed properly and many other tax saving avenues should also be kept in mind.
  1. Not fulfilling the Section 80C Limit

A person is eligible to get the deduction up to Rs.1, 50,000 under section 80C but everyone is not aware about the limit and also about the rules and regulations related to the section 80C. He can avail the tax benefit only by knowing the terms and conditions prior to investment, because there is many common misconceptions among the investors i.e. the entire premium is eligible for tax deductions. So to save the taxes people rush behind this.

For example: 10% of the assured amount is only allowed to be tax deductible whereas not the entire life insurance premium.

How to avoid it:

  • Investing Rs.1.5 lakh is not compulsion.
  • Invest the according to your pocket and also plan the tax-saving investments so that a person can take the full benefit of the available tax deduction under section 80C.
  • Planning related to the finances can be done bitterly only by understanding the rules properly.
  1. Invest in Endowment Insurance Plan:

Investment in Endowment Insurance Plan is essential because it is related to the life insurance schemes that are good for tax-saving. But doing a big investment in the endowment plan will not result in greater returns.

This scheme gives a greater benefit to the bank or insurance agents as this provides them highest commission at the rate of 35% for the first year premium and 5% on subsequent premiums, so that is why they all tend to convince and sell it to all the people.

Every person is need to the investment generally for the period of 10-20 years, so these investments are termed as long term investments, but the major drawback of these investment is that if a person wants to redeem in between then he is not even able to get the initial investment back.

How to avoid it:

  • Do not invest a lot in the endowment plan
  • Invest in term plans, that leads to the tax deduction under section 80C.

About the Author
Arpit Goyal is pursuing CA and B.com & also working as an article assistant in Gurgaon. He has an immense interest in Taxation. He loves to use technology to spread knowledge about taxation & accounts.

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