Most Common Tax Saving Mistakes

Quite often individuals may unknowingly make some mistakes while planning to save their taxes. Following are five common tax saving mistakes and tips to rectify them.

1. Waiting for the last moment

You may make the error of waiting until the last quarter of the financial year to plan their taxes. Doing so may cause you to make investments in financial instruments that are not suited to your needs. Instead, you may begin planning at the start of the financial year. This helps you to reap the maximum benefit of your tax-saving instruments.

2. Investing in tax-inefficient instruments

There are numerous investment vehicles available in the market. However, not all financial instruments help you save tax. Though five-year fixed deposits and National Saving Certificates (NSCs) are common tax-saving investments, the interest earned on them is taxable. Instead, you may opt to invest in schemes such as Public Provident Fund (PPF). Not only are such investments eligible for tax deductions but also the interest earned on them is tax-free.

3. Not reaping the full benefits of Section 80C

Section 80C of the Income Tax Act, 1961 allows a maximum tax benefit of INR 1.5 lakh, which may be claimed from your taxable income. However, many are not aware of this fact and often end up paying higher taxes as they are unable to reap the maximum benefits of this limit. You may, therefore, make investments that are eligible for Section 80C deductions, such as Equity-Linked Savings Scheme (ELSS), Employee Provident Fund, National Pension System (NPS), Unit-Linked Insurance Plans (ULIPs), and Senior Citizens Savings Scheme, among others.

4. Not taking basic expenses into consideration

Numerous basic expenses such as children's tuition fees, mobile or telephone bills used for office duties, uniform purchased for office wear, children's hostel expenses, and office conveyance expenses are some allowances that are eligible for tax deductions. Many individuals are unaware of the tax benefits on these allowances and do not claim deductions for the same. It is, therefore, necessary to be aware of such allowances in order to save tax.

5. Failing to set investment goals

Many fail to set investment goals, thereby putting their hard-earned money in financial instruments that are not aligned to their needs. You may plan your tax-saving portfolio in such a manner that you align it with your investment goals, such as child's further education or for your retirement. This will not only help you save taxes but also enable you to meet your long-term objectives rather easily.

You may keep the aforementioned tax saving mistakes in mind while planning your taxes. This will help you make maximum utilization of the various income tax deductions, thereby lowering your tax liability to a great extent. 

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