Financial planning does not only focus on return on investment; So the taxes on the returns received, the need for investment, the plan have to be considered. There are some things that should be carefully avoided.
In this article, let us see some common mistakes that can be made by investors.
Not investing according to need-
Many times people do not choose the right plan while investing for tax savings. If one wants to reap huge benefits in the long run, PPF can be a safe investment option. With this you can plan your retirement. Keep your needs in mind while choosing all these plans.
Avoid investing more than necessary –
If you are investing for tax savings, avoid investing more than you need. For example, if you have taken a home loan, you will get tax relief on the interest portion of its EMI under Section 24 of Income Tax. The principal amount will be exempted under Section 80C of Income Tax. In such a situation, if you are investing in PPF just to get tax exemption, it will be an unnecessary investment. Because the maximum exemption limit under Section 80C of Income Tax is Rs 1.50 lakh only.
Not investing in different schemes
Many times taxpayers do not diversify their investments while investing for tax savings. But, due to this, they may face difficulties over time. For example, you can invest in schemes like PPF for long term. But, at the same time there are options like ELSS funds for better returns. Try to plan an investment only after properly examining the future returns and benefits of any scheme.
Not knowing about all deductions
Under the old tax system, apart from the exemption of Rs 1.50 lakh under Section 80C of Income Tax, taxpayers also get the benefit of many other tax deductions. In this, an additional exemption of Rs 50,000 is available under section 80CCD(1B) on investment in NPS. Apart from this, the benefit of tax exemption is also available on interest rates on home loans and taking medical insurance etc. Don't forget to include all these deductions while investing for tax savings in such situations.
