Planning a tax strategy can be stressful when the deadline is fast approaching. But with the right knowledge, you can still make informed decisions and save better tax on your income.
Tax planning is an important part of every working individual’s life. The more in advance you plan out your tax strategy, the better; as it gives you more time to analyze and lay out your options in a more streamlined manner along with the added benefit of making better decisions. However, in reality, many people have a tendency to procrastinate or wait out until the deadline, for a number of possible reasons, to plan out their taxes. In the light of this, we asked 5 people about their experience with tax planning and the mistakes made while trying to save taxes in a rush:
- I bought insurance just to save tax (Rohit, 27)
I bought a life insurance policy just to save tax. I did save some tax, but I did not even care to explore my options or search the best coverage or go through the terms and conditions, and frankly speaking I don’t think I really needed the insurance at the time. I am now stuck with paying the premium for a plan that I am not satisfied with.
- I opened a fixed deposit account that ruined my liquidity (Ranjeet, 30)
I had read about the tax exemption under section 80C, and opening a fixed deposit account seemed like the easiest and most harmless option to save some tax on my income. At that time, all I wanted was to save tax and I completely ignored the fact that I would have to make recurring deposits. I also did not know that interest earned on a fixed deposit is further taxable. I guess it could be a good option for people who already have a well-planned FD, but it turned out to be more financially damaging to me. I have to pay a regular deposit and that leaves me with lesser disposable income and tighter budget for my monthly expenses.
- I paid more tax because I did not understand tax breaks on regular expenses (Ishita, 25)
I had no idea that I could get a tax deduction on house rent allowance. I have been living in the city since past 4 years and have been filing taxes for 2 years now, and I never filed reimbursement for my house rent or conveyance charges or my repayment of education loan. If only I had added these expenses before making the total computation, I could have paid lesser tax on my hard earned money. Anyway, my advice is, know your expenses and utilize these tax breaks to pay your taxes wisely.
- I ruined my finances by investing more than my capacity (Roshan, 31)
My biggest mistake was that I focused too much on the INR 1.5 lakh tax exemption under section 80C. I completely forgot to analyze how much tax I am actually liable for. All I had in mind was that I can save INR 1.5 lakh in taxes and ended up investing the whole amount of INR 1.5 lakh in mutual funds and forgot all about deducting other tax breaks. And, with the looming deadline, I did not put much thought into researching where to invest and jumped on the first option that intrigued me. Now, I earn INR 5 lakh per annum, so my tax liability was supposed to be INR 12,500/-. So, instead of simply saving tax on my taxable limit of INR 12,500/-, I ended up investing much more than I could afford, in a not so profitable stock, completely out of sync with my financial goals, and stressed out my finances for a long time since I could not even reverse the investment because of the mandatory lock-in period.
- I took a loan from my friend in an attempt to save tax (Harpreet, 29)
You know, how they say, a loan taken in desperation can put you in more financial burden than before? I learned it the hard way. I thought of taking the route of investment to save tax and possibly reap benefit from the returns. I know investment works but I did not plan it well. I had no idea about market volatility or stock market or tax efficient schemes or the importance of past returns and invested in what seemed to be doing well at the moment. I think I could have invested in better stocks had I looked for proper guidance. Besides, now I have the added stress of repaying my friend.
The lesson is, avoid making hasty decisions. It is better to plan early than to wait until the deadline. Take your time to understand the rules and regulations for tax exemption, and then look for the right solutions that suit your long term needs and potential. In case you need help in planning your taxes or choosing the right investment plan, visit tax-max.