Most Common Tax-Saving Mistakes Made by People

Rajesh often dreaded as the end of the financial year would begin to approach. He would panic and end up taking hasty financial decisions like saving in random tax-saving instruments by simply considering the advice given by his friends or colleagues.

Can you relate to the above situation?

Just like Rajesh, most of us repeat the same mistake. We blindly invest in certain avenues that may not necessarily give us great returns and end up making incorrect financial decisions.

Below are the most common tax-saving mistakes made by people:

Delaying tax-saving investments and hurrying to save taxes in the last quarter:

The key to building a good investment portfolio lies in making systematic investments over the year. People who are unaware of tax deductions tend to hurry and take a call in making tax-saving investments in the last minute.

Rushed investments can lead to erroneous decisions. Also making tax-saving investments at the eleventh hour will not allow you to reap its complete benefits. When it comes to tax-saving investments, timing is very important. Start investing in tax-saving schemes at the beginning of the financial year as it will help you to create a diversified investment portfolio.

Ignoring expenses that are tax-exempt:

Being ignorant is being foolish. Most of the people are not even aware of their monthly expenses. Some individuals are unaware that the expenses they make such as health insurance premiums, children’s tuition fees, house loan payment, and house rent qualify as valid tax deductions. Hence, they don’t declare such expenses and end up paying more taxes. One such common unknown allowance is that of the House Rent Allowance (HRA). Typically most of the employees get HRA from employers and if you don’t get this allowance then you can claim a deduction in your income tax returns.

Investing in Tax-Inefficient Schemes and not fulfilling the Section 80C limit:

When it comes to tax saving, most people simply invest in long-term fixed deposits (FDs) or national saving certificates (NSC) but the interest earned on both FDs and NSCs are taxable.

Investments made in Unit Linked Insurance plans, endowment plans are eligible for tax deduction and at the same time, the interest earned out of them are also tax exempted. Your investment portfolio should have the right mix of equity and debt investment funds. So, allocate funds according to your risk-appetite and life stage. Investing in a ULIP offers you perhaps the best combination of life cover, tax returns, and investment. It’s an ideal investment for a person with low to moderate risk appetite. Invest in a ULIP today to reap the tax benefit for this financial year.

When you are creating our financial portfolio, you must remember that investing in financial instruments especially the ones which offer tax-saving benefits is the right approach because it provides dual benefits. One, it reduces the amount of income tax that you’re liable to pay on earnings. Second, it encourages saving and investing at regular intervals. There is a third reason too, which often people often tend to overlook or underestimate, that is, tax savings can accumulate wealth for the future.

You must understand that investment and savings are two driving factors behind wealth creation. As important it is to invest in funds, it is also imperative to save money. And, claiming tax deductions is one of the ways for doing the latter. Because the money you save from tax deductions could be further invested in equity or other long-term funds to grow your wealth.

Unit Linked Insurance Plans are among the top wealth creation tools, both from an investment as well as the savings point of view. They can grow your wealth at a safe and steady pace, taking into consideration various financial goals at different stages of your life.

Conclusion

• As an investor desiring to accumulate wealth, you should keep a long-term investment and savings horizon in mind.
• Wealth creation calls for a goal based, disciplined and smart approach.
• An online Unit Linked Insurance Plan like Edelweiss Tokio Life Wealth Plus can help you achieve your wealth creation objective very aptly.