- Tax-planning gains importance in the last quarter of a fiscal
- It’s important to plan tax-saving beforehand to avoid last minute rush
- You shouldn’t put money in a wrong instrument to save taxes
- There are other sections apart from 80C that help lower your tax liability
With the tax-saving season on full swing, taxpayers are scouting possible ways to reduce their tax liability.
An annual exercise that gains momentum in the last quarter of the financial year, tax-saving must be done with utmost care as any wrong move can have a long-lasting impact on your financial well-being. Here are some pitfalls to watch out for in this essential activity.
1. Waiting until the last month of a fiscal to investIt’s an irony that tax-saving gains precedence in the last quarter of a financial year. Also, some taxpayers leave it till the end of March to plan taxes. This delay can lead to rash decisions which can hurt in the long run. So, you must not wait until the last month of a financial year to find ways to save taxes. It will not help you reap the benefits of the various avenues to the fullest and create a diversified portfolio, essential for long-term wealth creation.
2. Putting money in the wrong instrument
In a bid to save taxes, taxpayers often end up putting money in wrong instruments that don’t align to their financial goals. This not only delivers poor outcomes in the long run, but also leads to a recurring liability for several years to come.
It is therefore important to understand the basic objectives of any financial instrument and see if it helps you attain your goals, while bringing down tax-liability in the process. At the same time, it’s essential to make sure that it doesn’t bind you in a commitment, which you might not be able to fulfil in the future.
3. Not looking beyond section 80C
Section 80C is perhaps one the most popular sections outlining avenues where you can put your money to lower your tax liability. The maximum deduction allowed under this section is ₹ 1.5 lakh in a fiscal.
Often taxpayers limit themselves to this section, thereby failing to take advantage of tax deductions outlined in other sections. The table given below outlines the other sections of the Income Tax Act, 1961 under which you can claim deductions to save taxes:
|80D||Payment of medical insurance premium for self, spouse, children and parents|
|80DD||Expenditure incurred on health of a disabled dependent|
|80E||Payment of interest on an education loan|
|80EE||Payment of interest on home loan|
|80G||Donation made towards certain funds, temple|
|80GGA||Donations made to specified institutes|
|80GGC||Donation to a political party|
|80TTB||Interest on deposits with banks, post office, etc.|
Source: Economic Times
So, it’s not essential that you have to exhaust the maximum limit under section 80C while planning to save taxes. You can look out towards these sections too to lower tax liability.
With the deadline for making investments in tax-saving instruments nearing, it’s essential for you to make prudent decisions. If you can’t do it alone, it’s advisable to seek professional help. Also, make sure you make the right declarations while filing returns to avoid penalties and complications later.