Top 5 Mistakes You Must stop making In Tax-Planning
Tax planning is an important part of financial growth and savings too. But generally, people do not focus on the tax-planning with proper knowledge. However, there are some people out there who are thinking about proper tax planning but due to a lack of knowledge and proper guidance, they usually fall into the trap of unprecedented mistakes.
To help the taxpayers for the avoidance of such mistakes, we have mentioned below some of the main major mistakes in this blog. This piece of writing will explain the 5 mistakes that you make while tax planning.
Not Knowing The Applicable Tax Implications-
The first and foremost is to know the right tax implications applicable to you. You should be aware of how returns from these elements will be taxed while preparing your tax planning. For example, interest earned from (NSC) and a five-year tax-saving bank. FDs are merged with the taxpayer’s taxable income and taxed as per the income tax slab. Therefore, if you are in the category under a 30% or higher tax slab, post-tax returns from these elements may fetch low returns.
Waiting For Deadlines
It is found that most taxpayers generally start investing for the tax coming to the quarter of the financial year. Therefore, taxpayers sometimes made the wrong tax-invesments in hurry due to the deadline. Consequently, if you want to establish a well-formed financial life, then make sure that you put your money towards investments in a planned manner, not in haste.
Do not make the investments in a hurry at the end of the year when you pick up anything because you don’t know what else to do. And trapped in a loss.
Investing on a regular basis can help you to minimise the financial burden of investment in the last quarter of the financial year. The investment plan must be proactive instead of reactive, so think well before investing.
Link Your Tax-Investments Goals with the Financial Planning
Most people believe linking tax investment goals with financial planning is not a good thing. This can cause a lot of loss in the future terms. In fact, people must link their tax-saving investments with their long-term financial goals.
It is essential, that whenever you make investments in long-term tax-saving investments like EPF, ULIPs, PPF life insurance, or ELSS, to link them to your long-term future goals. Having the shortest lock-in period, while investing in ELSS, you need to link it with a specific goal and extend it until you get the desired results.
Section 80C Is Not Only About The Investing
Most people are aware of the fact that section 80C can provide you with a deduction of up to Rs 1.5 lakh of your total income, which means you can reduce up to Rs.1.5 lakh from your total taxable income. An additional deduction of Rs.50,000 can be claimed for investment in NPS under Section 80CCD (1B) over and above the Rs.1.5 lakh limit of 80C. Following are the investments mentioned below under section 80C.
Investing in Equity Linked Savings Schemes (ELSS), National Savings Certificates (NSC), Public Provident Funds (PPF), National Pension Schemes (NPS), Senior Citizen Savings Schemes (SCSS), five-year fixed deposits with the bank or post office, and Sukanya Samriddhi all fall under Section 80C.
Do not claim deductions under false sections
There are several sections refined by the government of the Income Tax Act that should be considered carefully. However, each deduction claim has to be filed in a respective section. Claiming the deductions under the wrong sections can attract additional income tax liability. Therefore, you may also be served with notice if you have mistakenly filed a deduction under the incorrect section.
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