Every worker under the taxation slab has to pay a significant amount to the government. Based on the annual income, a person’s tax can go to lakhs. Since these amounts are too huge to bear, people make investment plans so that they can enjoy the tax exemption.
However, while investing, if the options aren’t chosen properly, you won’t be able to cut down your tax. So, we will discuss the major mistakes you need to avoid while investing in saving the taxes.
Choosing the tax investment plans in the last quarter
One of the major mistakes that most people make while investing their money in tax-evading plans is a delay. Taxes are calculated based on the annual income, and hence, the file is usually submitted at the last quarter. However, this doesn’t mean you have to arrange the investment plans only in the last quarter. If that’s the case, you wouldn’t be able to reduce the tax by much amount.
Solution: Always plan the investments from the onset of a new financial year. Try not to wait for the last quarter to come for investing in proper tax-saving schemes, be it a loan or tax exemption investments.
Not paying attention to expenses that are exempted
No matter how much your monthly expense is, not all of them are taxable. For example, if you spend Rs. 10000 on foods and eatables throughout the month, you won’t have to pay tax for this amount. However, if you are buying liquor worth Rs. 10000 in one month, this amount will come under the tax rules of both the state and central government. Most people fail to recognize the expenses that are not taxable. This causes a huge problem since your documents for evading tax will get nullified.
Solution: It is better to learn about the expenses which can be tax exempted. The exemption rules are different based on states and countries. Apart from this, exemptions also differ based on the taxpayer.
Not having many tax-saving schemes
Many tax saving fund plans are there, which will help you to avoid the maximum amount of tax. However, many people procure only a couple of such scheme plans and end up paying more than what they had expected. This only happens because for evading the maximum tax, one needs to have many tax saving schemes.
Solution: Start planning early based on your tax file and then choose appropriate schemes so that you can save the maximum amount of tax. Based on the annual revenue, you have to decide which schemes have the biggest tax reduction percentage.
Investing huge money as the principal amount in the endowment insurance
Most of the insurances fall under the tax exemption criteria, and hence with a proper plan, you wouldn’t have to bear the huge taxes. However, if you have invested in the endowment insurance plan, you will not get the tax benefits since most governments apply taxation rules on these insurance policies.
Solution: It is better to choose an insurance investment where you won’t have to pay the taxes. You can choose the mutual funds to invest in for saving the taxes.
With the growing tax rates on different income slabs, it is mandatory for every individual to pay attention to the exemption expenses and the tax saving schemes. If you are choosing wisely, you won’t have to pay huge tax amounts at the end of each financial year.