Last-minute tax savings: Few common mistakes you must avoid
Those of us who wait until the last minute to plan taxes are bound to make some major mistakes. While you might manage to increase your total tax deductions with last-minute decisions, your investments may not align with your financial plans. This can also affect your monthly income due to the sudden and unplanned outflow of money. Follow these tips to avoid such mistakes.
A common mistake while calculating tax liability is focusing only on the income tax on the salary and avoiding other sources of income. Interest earned from deposits, capital gains from stocks, mutual funds, gold, rent, etc. should be considered as taxable income. If you do not calculate this correctly, you will not be able to analyze the exact deductions that you need to aim.
All working individuals will receive a standard deduction if they pay house rent, school fees, etc. Hence, it is important to be aware of and calculate the amount of tax that you have already saved before making any further adjustments. The Employee Provident Fund (EPF) contribution by your company, housing loans, etc. are a few other factors that you should take into consideration.
Buying insurance makes you eligible to meet the Section 80C requirement for tax-saving. However, some insurance plans will have endowment and ULIPs that have an associated investment risk in the investment portfolio that is borne by the policyholder. Choosing an insurance policy that is not subjected to market risks will ensure the safety of your family and tax-saving component as well.
Being aware of your eligible returns under the various investment avenues such as EPF, NPS, PPF, and ELSS is important. This will help you choose your investment options wisely. Further, investing separately in savings and insurance plans is recommended by experts. ELSS and VPF enable small-scale savings in line with one's risk tolerance and a term plan or health insurance for your insurance requirements.