5 Tax Saving Mistakes Every Taxpayer Must Avoid

By Author: Shashank Bhaskar
Total Articles: 63
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It is that time of the year when you look out for tax saving investments options to minimise your tax. Last-minute rush to save taxes could see you losing out the tax exemptions and many other mistakes. This could harm your financial health in the long run.

Following are some of the common mistakes that taxpayers make:

Ignoring wealth creation: While picking their tax-saving investments options, taxpayers often tend to ignore their financial goals. Tax saving might be the primary purpose; it should never be the only purpose. Both should go hand-in-hand. Also, while thinking about the benefits, consider other aspects like liquidity, returns, and risk factors. Your tax planning and wealth creation objective should be in sync. This way you can maximise your benefits effectively.

Limiting portfolio: Those who are risk-averse, ignore market-linked investment options. Tax on mutual funds like ELSS offers not just tax benefits but also higher returns than other tax instruments like PPF, ...
... NPS, insurance, etc. Moreover, the gains from ELSS can go up to INR 1 lakh. So, including ELSS in your portfolio is a boost.

Disturbing emergency funds: The desperation to reduce the tax liability often sees taxpayers channelising their emergency funds into the tax savings investments. If you had set a certain amount towards emergency, then it is advisable to use them for the same. Exhausting your emergency could add up to your finances as you have to take up a loan after that to fulfil your monetary concerns.

Unaware of tax deductions: Many taxpayers are unaware of the tax exempts that they can claim as deductions. Some of these exemptions include expenditures incurred on a specific disease, health expenses on a disabled dependent, children tuition fee, registration fee, stamp duty, and other costs related to transfer of house property, donations to specific institutions, funds, temples, political parties, and interest earned up to INR 10,000 on a bank account. Those who lack knowledge of these expenses end up paying higher taxes.

Last-minute tax planning: This is the most common tax mistake that every taxpayer You could end up taking erratic decisions or choosing low return tax saving investments options. Moreover, you could lose out on all the benefits as you end up submitting the investment proofs late. Also, when you pay the taxes on one go, you do not get the entire year’s returns.

Therefore, it is prudent you devise an efficient tax saving plan. You could invest in a health insurance plan, PPF, NPS, and if you want high liquidity, then ELSS is best.