Every person looks for ways to save on taxes. Thus, tax-saving investments is a preferred option. However, many tend to make some common mistakes while making such investments.
In this article, we will discuss a few mistakes that taxpayers make.
Income tax is indirect tax that is levied on individuals. It is levied based on the income of the individual. However, there are ways to lower the tax amount. There are various investment options that can help a person lower his/her tax liability. But many investors make mistakes while investing in a tax saving investment. These mistakes can have an impact on financial goals.
Here are some of the common mistakes taxpayers make-
Waiting Until the Last Quarter for Making Investments
This is one of the most common mistakes that taxpayers make. Many people tend to wait until the end of the quarter to start investing in tax-saving investments to reduce their tax amount. However, such investments will not help in building a good investment portfolio. Therefore, it is recommended to stay invested for a long time to reap tax benefits as well as earn good returns.
Not Calculating the Taxable Income
While considering income from salary, it is also important to calculate other incomes if a person earns them, such as business income, interest earned from deposits, capital gains, mutual funds, rent from property, etc. If a person doesn’t calculate the taxable income, then he/she will not know the deduction amount needed for reducing the tax amount.
Not Taking Benefit of Tax Exemptions and Deductions
Salaried individuals can avail a standard deduction of Rs. 50,000. Apart from that, there are other exemptions and deductions that a taxpayer can claim.
Furthermore, under Section 80C, taxpayers can claim tax deduction up to Rs. 1.5 Lakh by making specific investments. Some of the investments are ELSS, NPS, etc. Also, the premium paid for purchasing insurance can be claimed as a tax deduction under this section. A taxpayer can also get a tax deduction for the premium paid to purchase health insurance under Section 80D.
Not Considering Financial Goals
While planning for tax-saving investments, taxpayers should also consider their financial goals. Taxpayers should select a product that can help them achieve their financial goals in the long-term. It is wise to select tax-saving investments that can enable taxpayers to save taxes as well as earn good returns.
Not Investing in the Right Investment Products
Many people invest in insurance products that provide the benefits of insurance as well as investment in order to claim tax deductions. However, such plans tend to generate lower returns compared to other investment instruments like ELSS. Therefore, it is wise to separate investments and insurance. Invest in investments that can provide high returns while lowering tax liability.
Investing More than Needed
Taxpayers need to know how much money they need to invest to save taxes. They should estimate their total income and, based on that, make investments to reduce tax amount. Investing more money than required can cause problems while achieving financial goals.