Income tax-saving: March holds significant importance for tax planning, allowing taxpayers to leverage government-provided tax exemptions by investing in specified avenues. With the end of the financial year approaching, now is the opportune time to commence tax planning. Making well-informed decisions regarding tax-saving investments before the March 31 deadline is imperative. However, exercising caution during tax planning is essential to avoid missing out on the benefits of tax exemptions. When implementing last-minute tax-saving strategies, it's crucial to avoid common mistakes to prevent penalties or missed savings opportunities.
By avoiding these common mistakes and taking proactive steps to maximize your tax-saving opportunities, you can ensure that you're making the most of your finances while avoiding costly errors.
Here are mistakes to avoid while making tax-saving investments
- Not taking advantage of 80C: Under Section 80C of the Income Tax Act, individuals are eligible for a tax exemption of up to Rs 1.5 lakh. It is advisable to fully utilise this 80C exemption for tax planning purposes. Investments in schemes such as the Sukanya Samriddhi Yojana, Public Provident Fund (PPF), National Savings Certificate (NSC), and Senior Citizen Savings Scheme (SCSS) are avenues through which this deduction can be availed.
- Buying insurance policies to save taxes: Often, people rush to purchase insurance policies in March for tax planning purposes, which can have detrimental effects on their finances. Investing hastily in the wrong insurance products may result in minimal returns. Therefore, it is advisable to refrain from purchasing insurance hastily for tax planning purposes. Instead, if insurance is being considered for tax-saving purposes, careful planning beforehand is essential.
- Swiping credit card to buy policies: Many individuals, even without sufficient savings, opt to pay insurance premiums using their credit cards solely for the purpose of tax savings. However, this practice can lead to financial pitfalls, as it often results in individuals defaulting on their credit card bills and accumulating debt. Consequently, many end up paying more money in the form of interest charges instead of achieving tax savings. To avoid such situations, it's crucial to invest only when you have the necessary funds available.
- Making investments without proper planning: Another mistake that people can make during this end-moment frenzy investing without proper planning. To effectively save tax on your income, it's essential to plan in advance. Investing in tax-saving products without careful planning can result in missing out on important tax benefits. Therefore, it's advisable to engage in tax planning with thorough consideration and foresight to ensure optimal tax savings.
- Investing in products that offer low returns: Avoid investing or purchasing products that offer very low returns, lack liquidity, or come with high overhead costs.
Some other mistakes to avoid are:
- Missing the Deadline: One of the most critical mistakes taxpayers make is missing the tax filing deadline. Failing to file your taxes on time can result in penalties and interest charges. Ensure you know the deadline and make every effort to file your taxes before it passes.
- Ignoring Deductions and Credits: Many taxpayers overlook valuable deductions and credits that could lower their tax bill. Take the time to research and claim all eligible deductions and credits, such as those for charitable donations, education expenses, or retirement contributions. Leaving money on the table can cost you heavily in missed savings.
- Rushing Without Review: Last-minute tax filing often leads to rushed decisions and errors. Take the time to review your tax return carefully before submitting it. Double-check all calculations and ensure that you've included all relevant income, deductions, and credits. A simple mistake could result in an audit or missed savings opportunities.
- Forgetting to Fund Retirement Accounts: Contributing to retirement accounts like IRAs or 401(k)s can not only help secure your financial future but also provide valuable tax benefits. If you haven't maximized your contributions for the tax year, consider doing so before the deadline. Contributions made before the tax filing deadline can typically be deducted from your taxable income.
- Not Seeking Professional Help When Needed: Tax laws can be complex, and last-minute tax-saving strategies may require professional guidance. If you're unsure about how to optimize your tax situation or if you have complex financial circumstances, consider consulting with a tax advisor or accountant. They can provide personalized advice and help you navigate potential pitfalls.
It is very important to thoroughly understand policies and assess them before incorporating them into your financial plan.
Also Read: Narayana Murthy gifts shares worth Rs 240 crores to four-month-old grandson in Infosys
