5 Most Common Tax Saving Mistakes You Should avoid

Taxes eat up most of your income. The Government of India has made available tax credits and deductions for taxpayers to help reduce taxable income. The less tax you pay, the more you earn. But if you wait until the end of the financial year to receive your tax return, you may be wrong and pay more tax than others. These income tax return mistakes can be avoided if you are careful and start your tax planning before the year and make good investments like savings plan etc.

1. Ignoring non-taxable expenses

The majority of individuals are unaware of their monthly payment obligations. Some individuals are unaware that they can receive tax deductions for expenses like health insurance payments, children's education payments, home loan payments, and rent. As a result, they choose not to report these expenses and ultimately end up spending more on taxes. Another subsidy that is not well-known is the House Rent Allowance (HRA). Typically, the majority of workers are given an HRA by their company, and if you are not provided with this benefit, you may be eligible for a tax deduction on your yearly income statement.

2. Failure to avail the benefits of Section 80C

Section 80C of the Income Tax Act allows taxpayers to take advantage of deductions and exemptions to reduce their tax liability. Being knowledgeable about the various deductions and exemptions offered in Section 80C is crucial for utilizing them to your benefit.

3. Choosing Inappropriate Investments

You have many investment options to choose from when making your tax-saving investments. However, the most common tax mistake people make is choosing the wrong investments that only provide tax relief. Instead, the goal is to choose investment options that offer competitive features, good returns, good returns, and tax savings.

You should have some fixed or guaranteed returns 1 like NSC, PPF, mutual fund plans, etc., and a market investment like ULIPS (United Linked Insurance Plans), ELSS , NPS, etc.

4. Do not file taxes on time

It's important to file your taxes on time to avoid fines or penalties. It's also important to make sure your taxes are complete and accurate to avoid problems with the tax authorities. In addition, it is a good idea to consult a tax professional who can help you understand tax rules and regulations and can also help you save a lot of tax.

5. Putting excessive amounts of money into Endowment Insurance Plans

Endowment insurance plans are good life insurance for tax saving and efficient investment. However, spending a large portion of your hard-earned money on Endowment plans alone will not get you good returns.

When you go to a bank or ask your insurance for tax saving plans, they always recommend endowment life insurance plans. Because they get the highest commission at the rate of 35% of the first year's payment and 5% on subsequent payments, they want to convert and sell you.

These plans are very long lasting around 10-20 years, where you need to keep investing. If you buy in between, then you will not get back your initial investment. Many taxpayers make the mistake of using the full benefit of Section 80 C in endowment plans and neglecting other tax saving practices.

FAQs

Q. Is 12 lakhs salary zero tax?

A. Yes , You can pay Zero tax on Rs 12 lakhs salary by claiming deduction and exemption like HRA exemption , 80C deduction , Standard deduction , Housing loan interest etc. Provision to pay zero tax on Rs 12 salary exists in the old tax regime by leveraging all the existing deduction and exemption.

Q. How to pay zero tax upto 15 lakhs?

A. Firstly, by utilising the basic exemption limit offered by the income tax department, you can reduce your tax liability. For the financial year 2023-24, this exemption limit stands at Rs 2.5 lakh for regular taxpayers. So, the initial Rs 2.5 lakh of your Rs 15 lakh salary can be exempted from any tax

Q. How much income is tax free?

A. As per the income tax slab rates table, the first Rs 2.5 lakh from net taxable income will be exempted from tax. This is because there is no tax on income up to Rs 2.5 lakh as per current income tax slabs. Post this, income left on which tax has to be calculated is Rs 12,15,000 (14,65,000-2,50,000).

Q. What is 80D in income tax?

A. What is Section 80D of the Income Tax Act? Section 80D of the Income Tax Act, 1961 offers tax deductions of up to Rs 25,000 on health insurance premiums paid in a financial year. The tax deduction limit increases to Rs 50,000 per fiscal year for senior citizens aged 60 years and above.

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