While parking wealth into an investment scheme, depositors may often make mistakes that can have long-term impact on finances.
Tax-saving is an imperative part of overall financial planning and should be ideally planned throughout the year, say experts. While parking wealth into an investment scheme, depositors may often make mistakes that can have a long-term impact on finances. With the entry in the last quarter of the year, it’s necessary for every assessee to ensure his investment and expenses to align with his objective of tax savings and better returns.
(Also read: What happens when you file the wrong ITR form )
Here are 5 mistakes investors make while planning tax savings and how to avoid them:
Investment done without proper research
Taxpayers generally have the sole intention of saving taxes while making any kind of investment and tend to ignore the return and the risk factors. According to Naveen Wadhwa, deputy general manager, Taxmann, tax-saving can’t be an end result.
“It is an ancillary benefit one achieve on choosing an investment plan. One must wisely choose the investment option by taking into account the options available, assured returns, previous years’ return, etc., so as to minimize the tax liability and to increase the returns,” he said.
Late planning of investments
Another common mistake a taxpayer commits is planning investments in the last quarter of the year. He/she ends up with investment in less yielding schemes or schemes which are not eligible for deduction. Thus, to avoid bad investments, one must start tax planning from the start of the year. According to Archit Gupta, funder and CEO, Cleartax, one should try to get a good idea about their monthly income (inflow) as the financial year begins and set some tax-saving goals.
Ignoring tax-exempt expenses
Most people don’t know that the expenses they incur in their day-to-day lives can also help them save taxes. They often ignore the regular expenses made during the year which are eligible for deductions. One should first learn about all the expenses which qualify for deductions such as tuition fees, medical expenditure, stamp duty, registration fees paid on the purchase of immovable property, donations and interest on housing loans.
"One should keep a track of all eligible expenses made during the year along with their receipts so as to claim deductions in such respect at the end of the year,” Wadhwa explained.
Overflow in one, while causing a shortfall in others
Section 80C is a common provision for a pool of investments with an overall deduction limit of up to Rs 1.5 lakh. There are cases when due to lack of awareness, the taxpayers keep investing in all those options which are eligible only for deduction under Section 80C, i.e., insurance policies, FDs, ELSS, etc. Consequently, the limit prescribed under section 80C is fully exhausted, while other deductions remain unutilised.
“First make a list of all deductions that could be availed during the year and the investment that would be eligible for such deductions. Check the salary slips, bank statements and credit card statements to find out if there are any investments that are already eligible for deductions. If some deficit remains, then plan for making further investments," Wadhwa said.
First Published: IST