Planning for Tax Savings? Avoid These 5 Common Mistakes

Not everyone understands the need to take financial planning seriously. Whether it is while making investments or while doing tax planning, there are some very common errors taxpayers make, which can cost them dearly.Here are some of the common mistakes that you must avoid.

1. Interest on Home Loan under Section 24 and 80EE
2. Interest on Education Loan Under Section 80E
3. Donations made to charities under Section 80G
4. House Rent Allowance
5. Leave Travel Allowance

1. Life Insurance Premiums
2. Repayment of Principal of Home Loan
3. Tuition Fees of Dependent Children

1. Ignorance and Haste About Tax Saving: Ignorance is certainly not bliss when it comes to tax-saving planning. So is haste. It is not the last day of the financial year that you search for ways to save tax. The solution is to learn not just about how much tax you can save but all the ways you can do so and understand the process well.
2. Turning to Insurance to Meet Section 80C Requirement: You should look at life insurance as a safeguardfor you and your family and the tax-saving option as a bonus and not the other way round. The primary aim of buying insurance should be the coverage you get.
3. Not Considering the Lesser Known Tax Deductions: While you may put all the effort in saving tax under the popular sections such as 80C and 80D, there are other ways to save tax too, such as;
4. Only Focusing on Tax Saving while Making Investments: Tax saving must be one of the purposes of your investment and not the priority. You should choose schemes after considering returns, risks and liquidity to help face financial emergencies and meet your financial goals.
5. Underutilising Sections 80C and 80D: Under section 80C , you can claim deductions up to Rs 1.5 Lakh from your taxable income in a financial year. Many only look at ELSS to fulfil this section. However, there are other investments that can be added under this section to reduce tax liability, such as;

Similarly, many taxpayers only assume they can claim tax deductions up to Rs 25,000 under section 80D against the health insurance premiums. However, you can actually claim deductions up to Rs 1,00,000 under this section for health insurance premiums by adding your parents as well. Planning tax savings is a key element of financial planning. Avoid making mistakes while doing your tax planning and making investments to ensure you are able to make the most of the deductions offered to you by the government.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.