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The youth earners in our country often push the “save tax” action in the last of their to-do list and leave it for the last minute. This ultimately forces them to make investment errors, that prove to be harmful to their financial health.

While some of us are even not sure whether it is necessary to make an investment in order to save taxes! As per experts, the individuals with a salary package of less than about Rs 6.5 Lakhs, they actually do not need to do a tax saving investment.

Well, here we are discussing the common mistakes that an individual might commit while doing a last-minute tax-saving task, however, as a taxpayer, they can avoid making them this year, and can plan better next year.

BUYING AN UNNECESSARY INSURANCE PRODUCT

While buying an insurance policy, people often give a reason that they are doing it to save their taxes, which is completely irrelevant. Don’t just buy insurance policies to save tax. If you have are an insurance policyholder and you have purchased it to save your tax, then I would suggest pause and understand if the investment is actually of use to you in the long run.  

If it is of no use in the long run, then you are spending money, not investing or purchasing something useful.

WAITING TILL THE END? DON’T, DO A TAX-SAVING MF SIP

With ELSS (Equity Linked Saving Scheme), you don’t need to wait for the last minute, start your investment in ELSS, as soon as the financial year starts. Much better if you invest in ELSS via SIP, this would inhibit you from facing a big payment towards the end.

This will save you from needless running around come January when you have to submit your tax proof to the HR.

UNDERSTAND THE LOCK IN PERIODS AND THEIR RELATIONSHIP WITH INFLATION

Many new investors often get confused between the lock-in periods in tax saving instruments and their relationship with inflation, while the lock-in period is justified.

With many tax saving options with a lock-in period of at least 5 years and 15 years in case of PPF, you are at risk of underestimating the impact of inflation and what your money will amount to at the end of the tenure. While with tax saving mutual fund ELSS, your money is most likely to stay well ahead of inflation, even if inflation goes up.

Your tax-saving investment not only saves your taxes but works positively for the growth of your wealth if you invest in it wisely. A lakh a year invested is no laughing matter when you are looking at the growth rates the equity market is capable of generating (about 12% going forward is the expectation). ELSS tax saving funds are the primary tax-saving tools that can save tax and at the same time can grow wealth from your investment in the long run.

NOT CHECKING WHICH OF YOUR INVESTMENTS ARE ALREADY CONSIDERED UNDER SEC. 80 C

Those individuals with a higher salary bracket often miss out to check, that their EPF contribution is already fulfilling their Section 80C investment commitments. Those individuals whose EPF component is on the higher side might need not to make the investment or if needed, then you might need to invest less than you might think.

So basically, while planning your tax, think first about wealth creation and then make a wiser choice. Plan your tax so well, that it does both for you, save tax and contribute big to your overall corpus.

For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.

Happy Investing!

(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).