Tax Errors to Keep away from and Learn how to Repair Them: With hardly a couple of working days left for the monetary yr 2020-21 to shut, there might be some taxpayers seeking to save tax on the final minute. The deadline for making tax saving investments for the evaluation yr 2021-22 is March 31, 2021. However, finishing one’s tax planning train on the fag finish of the FY comes with its personal share of dangers. In a rush to avoid wasting tax, the potential for making the flawed funding resolution is excessive. Bear in mind, tax advantages ought to be considered as a fringe profit and one shouldn’t make investments merely to avoid wasting tax. There might be easy and customary tax saving errors that one might commit in selecting the tax financial savings funding choices. Listed below are a few of these errors that one might pay attention to.
1. Not contemplating New Tax Regime
For the primary time beginning the evaluation yr 2021-22, the taxpayers may have an alternate choice whereas submitting earnings tax return. Along with the prevailing or the previous tax regime, one might file ITR beneath new tax regime, at concessional charges. Due to this fact, as a taxpayer one must calculate tax legal responsibility beneath each tax regimes earlier than proceedings with tax planning.
2. Not estimating requirement
Should you select to go together with the previous tax regime, there are a number of tax saving choices to select from. However, earlier than you choose any tax saver make certain to verify how a lot of your current commitments in direction of them will qualify for tax saving this FY. The premium in direction of life insurance coverage, medical health insurance and your PF contributions should be taken into consideration earlier than estimating how a lot it’s worthwhile to save now. Don’t make the error of shopping for a brand new tax saver or investing greater than what’s required.
3. Ignoring Part 80D and others
Along with Part 80 tax saving funding choices, there are specific different methods to avoid wasting tax. Your medical health insurance premium qualifies one deduction beneath part 80D. Additionally, beneath part 24, your principal reimbursement in direction of dwelling mortgage comes with tax benefit. Make use of those tax provisions and take profit whereas submitting ITR.
4. Making a flawed transfer
Making tax saving decisions in a rush might find yourself locking funds right into a flawed funding that doesn’t gel along with your objective. For instance, in case you begin investing in Ulip for a objective which is round 5 years, the outcomes will not be fruitful. Equally, in case you want to create wealth over the long run and select to go together with a 5-year tax saving financial institution FD or NSC, the target will not be achieved.
5. Selecting ELSS primarily based on latest efficiency
Many taxpayers select to put money into ELSS, which comes with Part 80C tax profit, primarily based on their latest efficiency. It has been seen that the highest schemes don’t essentially stay the winners within the subsequent yr. Due to this fact, don’t make the error of selecting winners of at this time fairly have a look at long run efficiency whereas choosing the fitting ELSS.
6. Not linking to targets
Most tax saving investments corresponding to PPF, Ulips, life insurance coverage and so forth are long run in nature. In case you are investing in any certainly one of them don’t make the error of placing in cash merely for saving tax. Hyperlink the investments in tax savers to a long run objective and don’t exit mid-way earlier than reaching the objective. Although ELSS comes with the shortest lock-in interval of three years, hyperlink it to your long run objective. You could proceed with ELSS fund worth after the lock-in has ended.
7. Ignoring dangers
Even whilst you save tax, there are tax savers that may provide help to not solely scale back tax legal responsibility but additionally present safety. The premium paid in direction of time period insurance coverage plan and medical health insurance plans comes with tax advantages. Get an estimate on the requirement after which purchase time period insurance coverage and medical health insurance for all relations to care for life and well being dangers.
8. Sustaining asset allocation
Even whilst you save tax, don’t go overboard and make investments solely in a single asset class. For targets that are close to, financial institution FD with tax profit or NSC could also be appropriate whereas for targets corresponding to retirement, NPS, Ulips or ELSS might match the invoice. Diversification throughout belongings will assist in maintaining dangers beneath management to satisfy the specified targets.
9. SIP in ELSS
Investing by means of SIP has develop into a well-liked mode of investing. However, if you’re seeking to save tax by investing in ELSS, keep in mind that every SIP installment may have a lock in interval of 36 months. Additionally, SIP initiated in March might not provide help to a lot in saving tax for the present FY.
10. Prepayment of dwelling mortgage principal
Simply in case, you had repaid a principal quantity of your private home mortgage in FY 2020-21, don’t forget to take tax profit on it. The principal within the EMI qualifies for tax profit beneath part 80C, whereas the curiosity paid is deductible beneath part 24.