The word “Tax” bugs every salaried individual and business man equally, who often interpret the meaning of tax payments as an added burden on their shoulders. Nobody likes chip off a piece of income from their earned money and pay it forward in the form of taxes, despite knowing how taxes ultimately help us and our economy.
In their desperation to reduce their tax pay-outs, individuals often turn to investment instruments that reduce their tax load. These decisions are made hastily as the financial year comes to an end, thus resulting in blunders and picking out investment options that may increase tax-savings but may not assist in achieving long-term goals. An ineffectual tactic that might create difficulties for the financial year ahead.
Paying taxes is not merely a compulsory act, but it is the duty of every country’s citizens to help in building their economy. However, tax-savings schemes are still opted for and are offered by the government to allow individuals to save for a secure and financially healthy future, while being tax-paying citizens. These tax-saving options and investment products consist of, but are not limited to, Equity Linked Saving Schemes (ELSS), life insurance, medical insurance, Public Provident Fund (PPF) and National Saving Certificates (NSCs)
Making precise decisions when concerning money management is a necessity, which if paid proper attention to can lead to a successful and hassle-free business future. Therefore, below are some of the common mistakes which people make while making tax saving investments:
1) Putting all your eggs in one basket: This effective advice emphasises on not putting all your investments in a single tax-saving scheme, and instead, advices individuals to research various tools. Be open with your choices, and think of the criteria offered by a number of tax-saving instruments before opting for any.
2) Not thinking beyond certain rules for deductions: Due to the last-minute rush, people often fail to acknowledge investment tools that can provide them with more tax deductions that they are entitled to. Tax deductions in relation to health support for yourself, your kids, spouse and parents can be claimed. Moreover, deductions for the donations made to the charitable organizations can also be taken into account to reduce overall tax payments.
3) Thinking solely about tax savings without thinking about wealth creation: Tax saving tools are not solely aimed for the purpose of tax deductions, and can also be used in order to create wealth by an individual. Therefore, it is highly advised to not only opt for the instruments which back tax-savings, but to go beyond and avail benefits of growing your wealth and enlarging your investments. This effective strategy would help you in earning dual benefits.
4) Buying endowment insurance plans: Endowment plans are the life insurance contracts, designed to pay a lump sum after a specific time period. Although seemingly compelling, endowment plans are not a suitable form of investment, unlike tax-saving mutual funds or PPFs which provide tax-free returns, unlike the endowment insurance plans.
5) Investment Amount: Conventionally, taxpayers invest the total amount at their disposal without accounting other amounts that are also desirable for deductions. Children’s school fees, repayment against housing loans, PF deduction, and insurance policy premium are some of the Investments that are also desirable for deductions. Therefore, investing entire amount on a single platform is certainly not advised.
If you are looking to build a financially secure future for yourself with effective tax-saving investments, then refraining from committing the blunders mentioned above might come in handy.