Tax Planning

Tax Planning: 5 Frequent Errors Taxpayers Ought to Keep away from When Saving Taxes

Last Minute Tax Saving Mistake (Representative Image)

New Delhi: The last date for tax investments for the tax year 2021-22 (fiscal year 2020-21) is March 31, 2021. With only a few days remaining until the end of the fiscal year 2020-21, some taxpayers could look to save tax at the last minute . It should be noted, however, that maintaining tax planning through to the end of the financial year is associated with its own risks. The chances of making the wrong investment decision are high when you invest in a hurry to save on taxes. Investing should not only be aimed at saving taxes, but also to maximize returns. Here are some common tax saving mistakes people are likely to make when making a last minute tax saving decision.

1. Without considering a new tax system

From the 2021-22 assessment year, taxpayers have an alternative option while filing the income tax return. In addition to the old tax system, one can file ITR under a new tax system at reduced rates if they do not wish to make investments under popular Section 80C of the Income Tax Act. The new regime allows taxpayers to reduce their tax liability without receiving Section 24B and Section 80C benefits by paying taxes at lower ceiling rates. Therefore, as a taxpayer, one has to calculate the tax liability according to both tax regulations before a tax planning procedure is initiated.

2. Make a wrong move

Making the wrong investment in a hurry can result in a lower return for you and freeze your money for longer. For example, if you want to create a large corpus for your retirement, investing in a 5 year tax-saving bank FD or NSC will not do your job. Investing in Ulip for a goal of around five years may not get the result you want.

3. Selection of ELSS funds based on the latest performance

Many taxpayers choose ELSS Funds with Tax Advantage under Section 80C based on only 1 year and 2 years of performance. It should be noted that a given MF scheme may not remain the top performing scheme forever. Every year you will find that a different MF system tops the return chart based on the underlying funds and the performance of ifferent. Avoid making the mistake of picking the top performers for the current year and considering other factors such as 10 year returns, risk-adjusted returns, maximum portfolio drawdown, etc.

4. Ignoring Section 80D and Other Benefits

In addition to the tax saving options under Section 80C and Section 24B, there are certain other tax saving options. Your health insurance premium and the interest payment on an educational loan can also help you save on taxes. Second, the principal repayment for home loans may also be tax deductible under Section 80C. You should take advantage of these tax rules and benefit from them when filing ITR.

5. Don’t associate investments with goals

If you are investing in tax-saving assets such as PPF, EPF, Ulips, Life Insurance and ELSS, which are long-term in nature, it is important to link those investments to a specific long-term future goal and not to leave the investment halfway before reaching the investment desired destination. Even if you invest in ELSS, which has the shortest embargo period, you have to associate it with a specific gol and can extend it until you get the amount you want for your goal. You can also consider topping up your ELSS investment with an additional amount if the markets see significant corrections.

Related Articles