4 Common Tax Saving Mistakes You Might Make
Every person has one thing in their mind while paying the taxes is to save it. We have made a to-do list that you can check at the last minute and avoid errors while filing a tax. Some people are also not aware that they can save their tax while investing in investments. Most of the people are below 6.5 lakhs they can save a lot of money rather than paying as tax.
• Where to invest?
• What to invest in?
• How to invest?
• How your taxes can be saved?
Here are the top 4 such mistakes which people make while investing to save tax hopefully we can plan better as we have a dedicated team for the same which constantly looks after the ups and downs of the market and help us to make fruitful investments:
1. Purchasing an irrelevant insurance policy.
Saving is an important part of tax investment. If we are talking about insurance policy people generally purchase it from their relatives or anyone closer to them. When a financial planner asks them about the investment they show their insurance policy. But actually, Insurance policy is their expense, it is not an investment that can be benefitted for long term.
2. Waiting till the Last will always be benefitted
With tax-saving instruments such as ELSS mutual funds, you don’t really need to wait till the last. We can make investments anytime. Through Imperial Finsol you can always keep a watch on your investment through their app. If we do investment at last moment there will lot of headache at the end. It is always beneficial if we do the investment at the beginning of the Financial year, It saves a lot of time and patience. Even if you are opting for FD & PPF it is also necessary to start it at the beginning of the Financial year.
3. Lack of knowledge of lock-in periods and their relationship with Inflation
Many new tax-saving investors often fixate on “stability” and “safety”, after comfort. The lock-in period is justified away. But with most options having a lock-in period of at least 5 years and 15 years in the 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. You need to ask yourself – are you making the most of your hard-earned money?
With tax saving mutual funds, your money is most likely to stay well ahead of inflation, even if inflation goes up. At a historical rate of 7 percent, inflation is likely to make things cost double what they do now, in a decade. This means that the lock-in of 15 years will also have significant consequences inflation-wise. Many investors forget this fact.
Your tax-saving money can be a significant part of your long term wealth corpus if you invest right. 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 percent going forward is the expectation). ELSS tax saving funds are the primary tax-saving tool that can exploit this fact. You are potentially looking at a Rs 24 lakh corpus in 10 years by just investing Rs 8,000 a month in tax saving funds.
4.Unaware of which investment qualifies under section 80c
The higher salary bracket often does not understand that they are already fulfilling their 80C investments via their EPF contribution. If your EPF component is on the higher side, do a double check before investing. You might not either need to invest or if so, then you might need to invest less than you might think.
So this tax season, think first about wealth creation and then make a wiser choice that will not just help you save tax but contribute to your overall corpus allowing for both financial security and freedom.
