Any financial expert will recommend that you begin tax planning from the start of the financial year. This ensures efficiency and better savings, thereby preventing any hasty decisions at the end of the year.
The Income Tax (IT) Act, 1961 offers several opportunities to help you reduce your tax burden. It is prudent to take advantage of these; however, here are some mistakes you should avoid in the process:
- Not maximizing on the Section 80C limit
Section 80C provides individual taxpayers and Hindu Undivided Families (HUFs) benefits of up to INR 1.5 lakh per year. An important tax-saving tip for salaried employees is to take advantage of the entire limit available under section 80C. You must invest in various instruments eligible for these deductions. Moreover, it is recommended that you spread your tax-saving investments throughout the year. This ensures that you make the most of your savings potential.
- Map tax savings to financial goals
Another common mistake is to view tax planning in isolation. To maximize the benefits of tax savings, it is important to optimize investments and make sure they are in line with your financial goals. For example, you should not avail of life insurance as a tax-saving option. Life insurance is more important to safeguard the financial stability of your loved ones in case of an untoward incident. Additionally, the provident fund must be viewed as an important instrument in your retirement planning and not as an unnecessary expenditure.
- Last-minute rush
Often, you may procrastinate and miss out on finding ways on how to save tax until the last few months of the financial year. Investing in various tax-saving products at this time does not allow you to maximize the available benefits. It is important for you to plan and start investing in different products such as insurance, pension plans, fixed deposits, Public Provident Fund, and others at the beginning of the financial year. When you invest at this time, your investments grow for a longer tenure, and therefore, it helps in maximizing the returns.
- Ignoring basic exemption
To maximize tax return benefits, you must know the basics and ensure that insufficient experience does not cost you money. In addition to section 80C deductions, tax benefits are available for several other expenses. Some of these include tuition fees, leave travel allowance, health insurance premium, and many more. It is advisable to learn about these additional tax exemptions to minimize your tax liability and save money.
If you do not have a thorough understanding of the best tax-saving and tax filing tips, it is advisable to seek professional advice. An experienced financial expert, like a Chartered Accountant, will help you understand the basics and prevent you from making some of the aforementioned mistakes due to inadequate knowledge and expertise. Learn the basics today and ensure that you plan your taxes smartly and efficiently in the current financial year.
