Do you want to save tax and create wealth? You better avoid making these common tax mistakes. Tax planning means you don’t pay an additional rupee in tax. If you don’t plan taxes, you will lose a lot of money.
Tax planning must be done the right way. This article gives the tax mistakes to avoid in the year 2020.
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The main purpose of investing is to meet financial goals. Tax Planning must align with financial goals. Most people avail life insurance plans like Endowment Plans and ULIPs at the last minute just to save taxes. Life Insurance is a push product. You must avail life insurance plans which match financial goals. In most cases, this is a term life plan which few people avail.
Compare tax saving investments like ELSS, PPF and so on. Invest in tax saving investments based on risk profile. Also look at the liquidity of the investment. PPF has a 15 lock-in period. It may not be too liquid.
Avail investments like PPF and ELSS based on risk profile. They give high returns and excellent tax benefits.
Many people invest in tax saving instruments like PPF, 5 year FDs and NSC. They ignore ELSS which is an excellent tax saving investment, just because it doesn’t match risk profile.
ELSS are equity-oriented investments. They give inflation-beating returns if you stay invested for the long term. It offers higher returns than most tax saving investments. It also have a lock-in of just 3 years compared to most tax saving investments which have a 5 year lock-in period.
You can continue with the ELSS even after the lock-in period. LTCG is tax free on gains up to Rs 1 Lakh. Higher LTCG gains are taxed at 10%.
You must never rely on last minute tax planning. This leads to wrong decision making and you land up with the wrong tax saving products. You might not submit the relevant investment proofs in time, leading to not getting the tax benefits.
See Also: Steps to Finalize Tax Saving Instruments
Do tax planning at the start of the financial year. You can select tax-efficient investments and you have the time to submit the investment proofs and also enjoy higher returns with time.
You must never mix insurance and investment. The main purpose of insurance is risk protection and term life insurance fits the bill. You can then invest in whichever tax-saving investment you want based on risk profile. ELSS is a tax-efficient investment for aggressive investors. For conservative investors PPF is great.
See Also: Investments for Tax Free Income
Many people avail ULIPs to save taxes. This is a bad choice. ULIPs don’t have sufficient mortality cover and after mandatory charges, you don’t get sufficient return on investment.
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