Common tax knowledge and a little bit planning can help you how to avoid these costly mistakes that we make:
Not including eligible deductions
Most of the taxpayers do not know about all possible options under section 80C. Instead of the investments, there are many other expenses that are also eligible for the deduction, such as children’s school fees, home loan repayment, stamp duty and registration fees paid for the home. If you have 1 Lakh limit, then you do not need to make tax-saving investments.
Not availing of tax deductions
Many taxpayers do not look 80C and 80 D sections when they calculate their tax liability. If you are suffering from any critical disease or physical disability, then you can claim a deduction of up to 60,000 under many sections like 80U, 80DD, and 80DDB. If you donate to a specified charity then your donation is also eligible for deduction under section 80G, under section 80E, the education loan interest is fully tax-deductible.
Purchasing insurance to save tax
It is the most common tax that Indians pay. Life insurance is necessary, and everybody should take it. The objective of life insurance is to provide financial security to your family in the future, not save thousands of rupees in tax. Consider tax saving as a discount on the premium, not as a purpose of purchasing insurance. When you purchase a life insurance plan, you sign a long-term recurring commitment. Getting out of it, this is a costly affair because you end up paying surrender charges. If you choose a traditional insurance plan, then a high premium can prevent you from investing in other financial goals.
Not taking taxability into account
Every tax saving investment gets a separate tax treatment. The interest that is earned on PPF is taxfree, but income from a fixed deposit is fully taxable. So, 8.8% offered by PPF is better than 9% given by a fixed deposit. Insurance policies offer a tax-free amount.
Investing lump amount in equity
It happened if you pay the entire year’s tax planning into the last days of the financial year. Equity investment is staggered across the year so that you would not catch on the wrong foot. If you think to invest a huge sum in the ELSS fund, then you are going to take a big risk. Like, investing a lump amount on equity can be a bad idea.
Avoiding lock-in the period
All investments under section 80C come with a lock-in period. Be sure that the lock-in period matches your requirement before you make an investment.
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