Tax Planning
6
Tax Mistakes
You Must Avoid
Last-minute tax-saving decisions can leave you in a mess . Preeti Kulkarni and Himali Patel point out the traps to avoid
Everyone wants to maximise tax benefits by making investments to claim the deductions of up to `1.5 lakh available under Section 80C . While the ideal approach is to chalk out a meticulous plan that ensures staggered investments through the year , not many follow this rule . These ‘ forced ’ 80C investments can instill saving habit , but many also end up making unsuitable investments in haste or ignore tax deductions they can claim without having to invest at all . Here are some common pitfalls , which can cause harm rather than add value to your finances :
Falling prey to acquaintances ’ sales pitches
1
Despite getting an entire year to plan , tax-payers put off making tax-saving investments until March 31 , the deadline for completing this exercise . In fact , it is common to see many filling up forms on the last day . The delay often forces them to outsource the process to their agents who are likely to recommend products that offer higher commissions rather than that those suited to your needs . Before investing in instruments that your relationship manager or acquaintance-cumdistributor has recommended , ascertain your requirements . “ Pressure from peers , neighbours or relatives should be avoided . Investments should suit your financial goals , and not be made to receive immediate tax benefits ,” says Amarpal Chadha , tax partner and India mobility leader with consulting major EY . Ensure that you make the tax planning exercise an integral part of your financial planning to reap dividends .
Blindly investing to
2 exhaust the 80C limit Many do not pause to think whether they need to invest `1.5 lakh to exhaust the Section 80C limit . Find
Amit Maheshwari partner
Ashok Maheshwary & Associates LLP
Before buying ( savingslinked ) life policies , compare the risks and returns of other 80C avenues . Regular policies entail recurring and timely premium payments
out if your Employees ’ Provident Fund ( EPF ) contribution , which is automatically deducted from your salary every month , tuition fees paid towards children ’ s education , life insurance premium and housing loan principal repaid during the year can breach the limit , thus , eliminating the need to make fresh investments . Unplanned investments can do more harm than good — do not invest without analysing the need for the same , advice tax consultants .
Ignoring recurring life insurance premium
3 commitment With an army of aggressive , incentives-driven insurance agents around , life insurance — particularly endowment plans and unit-linked insurance policies ( Ulips )— is the most popular route to avail of Section 80C benefits . However , the downside of regular life insurance policies is that the premium payouts have to be made at regular intervals . Endowment plans and Ulips , which carry huge premiums , can make regular payments difficult for those who have not planned finances beyond the current year . “ Before investing in these policies , compare the risks and returns of other 80C avenues . Regular policies entail recurring and timely premium payments ,” points out
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Outlook Money February 2018 www . outlookmoney . com