Tasks that contain the word “planning” should not be completed until the last minute. With so many tasks, however, it’s understandable that we sometimes miss the tax planning bus. Leaving your tax debt payments until the last minute increases the chances of making simple but costly mistakes many times over. Here’s a quick rundown of some last-minute tax planning mistakes that should be avoided.
This may seem like a no-brainer, but the truth is that many people don’t even know how much they owe in taxes. Take some time to quickly search your primary and secondary sources of income and calculate your gross taxable income.
The main sources include your monthly salary, corporate profits, and other professional sources of income. Secondary sources are the ones that most people ignore. This includes dividends, rental income, royalties, interest income, and capital gains.
To understand how much to invest in tax-saving financial products, the first thing you need to know is your gross taxable income from all possible sources.
After April 1st, submitting ITRs will be made easier with pre-filled forms. But you have to do the math yourself by March 31st.
- Do not take full advantage of the tax saving provisions
Save as much tax as possible by taking full advantage of the tax savings policy. Most people know that Section 80C will help you get a tax deduction of up to Rs. 1.5 lakhs by investing in instruments such as the Public Provident Fund (PPF), Employee Provident Fund (EPF), National Pension Scheme (NPS) and Equity-Linked Savings Scheme (ELSS), to name a few. However, there are other tax saving rules that could be applied in the same way.
For example, under Sections 80D / DD / DDB, you can apply for tax deductions for all medical expenses paid for the treatment of disabled relatives or for certain diseases listed in the law.
- Without taking liquidity into account
Regardless of whether you invest in tax-saving mutual funds or time deposits, you should take into account that there is a lock-up period associated with every financial instrument that can be used to save taxes. It is important to analyze your liquidity needs before investing large amounts in tax-saving products. Investing all of your money in tax-saving products with a long lock-up period can lead to a financial crisis if you need money immediately at a later date.
- Do not pay attention to avoidable transaction errors
While you are planning your taxes at the last minute, it is possible that a few silly mistakes will cost you a lot. Note that most tax saving instruments require you to make payments a few days before the IT filing deadline so that the amount is reflected in your PPF, NPS, or other account.
If you send your check-in on March 30th, it may not be cleared the next day. In such a situation, you paid the money and still lost any tax breaks that you could have won. Also, keep an eye on the signatures and documentation requirements, as a missing signature and an undelivered document will thwart your tax planning at the last minute.
Since this is your hard earned income, it is always wise to complete your tax planning well in advance. Avoid these avoidable mistakes even if you can’t plan any further at the last minute.