Avoid some common mistakes people do while planning tax savings
It is always good to keep necessary things in check in order to avoid mistakes while tax planning
Many would agree that tax planning is a nightmare, considering the complex procedures a taxpayer has to go through.
Before a financial year ends, an individual has to gather all his or her documentation either for paying taxes or for filing return.
There are levels of procedures for claiming a deduction in various categories.
Hence, it's a vast procedure, and sometimes many are left with last minute documentation to meet the deadline.
However, it is always best to keep necessary things in check in order to avoid mistakes while tax planning.
Here's a list of mistakes that one needs to avoid while tax planning, according to BankBazaar.
Health Insurance Premium In Cash
Section 80 (D) enables an individual to lower the taxable income by Rs 25,000 (for non-senior citizens).
With this tax deduction, an individual can claim Health Insurance premiums paid on behalf of self, spouse, children, and parents but only if the premium is paid through a non-cash mode such as cheque, online, etc.
The report says, "In the last-minute rush, people often make the mistake of paying through cash and so end up paying higher tax despite buying a health policy,"
So in case, if you plan to avail benefit under section 80 (D), you need to avoid paying in cash your health insurance premium.
This is an important factor, one should always keep all their documents in order so that the taxpayer do not miss out important financial transactions which can be eligible for tax benefit.
While filing Income Tax Return (ITR), a taxpayer will need these documents as a proof if a clarification is sould.
Some basic documents during ITR are -- PAN and Aadhaar card details, statement of all your bank accounts, TDS certificate, Form 16, pension certificate, salary slips, rent agreement, rent receipts, travel-related bills, interest earned from bank accounts and investments, etc.
Non-Tax Saving Instruments
BankBazaar says, "If your investment goal is to earn good returns as well as save tax, then you must be well versed about the instruments you are investing in."
It is always advisable to consult your tax advisors for appropriate instrument and requirement, during investment
For instance, like ELSS wins as a tax saving bet over an investment in SIP in an equity fund.
Last minute tax savings
There are many people who do not plan tax savings in advance and invest in any available tax saving instrument in the last minute.
Such results in the selection of inefficient tax saving product along with putting a financial burden to arrange funds.
"You should plan and invest money to save tax from the beginning of the financial year. It gives you flexibility and also better options to select appropriate tax saving products," says BankBazaar.
One must make sure that your tax savings procedures are always in line with financial planning.
For instance, a taxpayer requires a fund to accomplish a financial goal after 3 years, but they overlook this requirement and invest money in PPF or NPS to save tax, which carries a longer lock-in period.
Thus, a taxpayer must consider factors like liquidity, return, risk and other aspects in sync with your financial objectives before you make a decision to invest and save tax.
Apart from this, one must consider tax savings option on regular intervals and should avoid one-time process.
Also, it is always better to file the tax well before the last date in order to avoid penalty.