Tax Mistakes to Avoid and How to Fix Them: With hardly a handful of working days left for the monetary year 2020-21 to close, there could be some taxpayers searching to save tax at the final minute. The deadline for producing tax saving investments for the assessment year 2021-22 is March 31, 2021. But, finishing one’s tax organizing workout at the fag finish of the FY comes with its personal share of dangers. In a hurry to save tax, the possibility of producing the incorrect investment selection is higher. Remember, tax advantages must be viewed as a fringe advantage and one must not invest merely to save tax. There could be basic and popular tax saving errors that one may perhaps commit in deciding on the tax savings investment solutions. Here are some of these errors that one may perhaps take note of.
1. Not contemplating New Tax Regime
For the 1st time beginning the assessment year 2021-22, the taxpayers will have an alternate alternative when filing earnings tax return. In addition to the current or the old tax regime, one may perhaps file ITR beneath new tax regime, at concessional prices. Therefore, as a taxpayer one desires to calculate tax liability beneath each tax regimes just before proceedings with tax organizing.
2. Not estimating requirement
If you select to go with the old tax regime, there are a number of tax saving solutions to select from. But, just before you choose any tax saver make confident to verify how considerably of your current commitments towards them will qualify for tax saving this FY. The premium towards life insurance coverage, overall health insurance coverage and your PF contributions require to be taken into account just before estimating how considerably you require to save now. Do not make the error of shopping for a new tax saver or investing more than what is essential.
3. Ignoring Section 80D and other folks
In addition to Section 80 tax saving investment solutions, there are specific other approaches to save tax. Your overall health insurance coverage premium qualifies one deduction beneath section 80D. Also, beneath section 24, your principal repayment towards household loan comes with tax benefit. Make use of these tax provisions and take advantage when filing ITR.
4. Making a incorrect move
Making tax saving possibilities in a hurry may perhaps finish up locking funds into a incorrect investment that does not gel with your target. For instance, if you commence investing in Ulip for a target which is about 5 years, the final results may perhaps not be fruitful. Similarly, if you want to make wealth more than the extended term and select to go with a 5-year tax saving bank FD or NSC, the objective may perhaps not be accomplished.
5. Choosing ELSS based on current efficiency
Many taxpayers select to invest in ELSS, which comes with Section 80C tax advantage, based on their current efficiency. It has been observed that the prime schemes do not necessarily stay the winners in the next year. Therefore, do not make the error of selecting winners of today rather look at extended term efficiency when picking the ideal ELSS.
6. Not linking to ambitions
Most tax saving investments such as PPF, Ulips, life insurance coverage and so on are extended term in nature. If you are investing in any one of them do not make the error of placing in funds merely for saving tax. Link the investments in tax savers to a extended term target and do not exit mid-way just before reaching the target. Even although ELSS comes with the shortest lock-in period of 3 years, hyperlink it to your extended term target. You may perhaps continue with ELSS fund worth soon after the lock-in has ended.
7. Ignoring dangers
Even when you save tax, there are tax savers that can assistance you not only decrease tax liability but also provide protection. The premium paid towards term insurance coverage program and overall health insurance coverage plans comes with tax advantages. Get an estimate on the requirement and then purchase term insurance coverage plans and overall health insurance coverage for all household members to take care of life and overall health dangers.
8. Maintaining asset allocation
Even when you save tax, do not go overboard and invest only in one asset class. For ambitions which are close to, bank FD with tax advantage or NSC may perhaps be appropriate when for ambitions such as retirement, NPS, Ulips or ELSS may perhaps match the bill. Diversification across assets will assistance in maintaining dangers beneath manage to meet the preferred ambitions.
9. SIP in ELSS
Investing by means of SIP has grow to be a well-liked mode of investing. But, if you are searching to save tax by investing in ELSS, don’t forget that every single SIP installment will have a lock in period of 36 months. Also, SIP initiated in March may perhaps not assistance you considerably in saving tax for the present FY.
10. Prepayment of household loan principal
Just in case, you had repaid a principal quantity of your household loan in FY 2020-21, do not neglect to take tax advantage on it. The principal in the EMI qualifies for tax advantage beneath section 80C, when the interest paid is deductible beneath section 24.