Tax planning mistakes to avoid - wait till the last minute, invest in tax-inefficient products

Ensure tax planning through informed decisions and financial knowledge by avoiding these mistakes.

5 mistakes to avoid while tax planning

In the bustle of routine life, many tend to overlook some essential financial strategies involved in tax planning. For instance, they might wake up one fine morning to realise that there’s no time left to complete the documentation process. Last-minute planning can often lead to errors and affect one’s financial growth and tax saving.

To avoid such situations, be mindful of the following mistakes and learn how to avoid them.

1. Not having enough knowledge of taxation

To reap the maximum benefit from any investment, it is advisable to gain some knowledge about it. No, you don’t need to be a tax expert. But you should educate yourself with the basics so  you don’t use or disclose any incorrect investment declarations. After all, you are making tax saving investments and this will have a long-term implication on your financial growth. For a start, read some tax articles during your free time. You will see your confidence increase in a few months. 

Also Read: Tax Planning Tips For Every Age Group

2. Waiting till the last minute to do the planning

A major mistake that many make is to wait until the last quarter of the financial year for their tax planning. In this haste, you might rely on someone for quick advice and end up making the wrong decision. What is right for your friend may not be suitable for you. Be active in tax planning from the beginning of the financial year and make an informed decision.

3. Not having a transparent strategy for your financial goals

As a diligent taxpayer, don’t just plan for the sake of tax deductions. Be focused on your financial goals and plan in keeping with your needs - such as your retirement, your child’s education or wedding, or building your dream home. Failing to do this can make your investment a random item in your personal balance sheet. So, learn about personal finance, prepare an investment list against your financial goals, and invest only as per your goals.

Also Read: Here's How Women Can Save On Income Tax After A Salary Hike?

4. Investing in tax-inefficient products with inadequate knowledge

Once you are clear regarding your financial goals, educate yourself about the relevant features of the financial instruments vis-à-vis the following specifications:

  • Liquidity: Find out the lock-in period, when and how can you withdraw your money, and the penalty charges involved.
  • Risk: Some investments may seem riskier, but they often give you better returns at the time of maturity, even in the face of inflation.
  • Taxability: Find out about income tax deductions, taxability of early withdrawals, maturity process, tax slabs, etc.

5. Falling back on outmoded ways of tax saving

Do not be lazy and follow traditional and outmoded ways of tax saving that your parents or grandparents did. The current financial scenario is vastly different from theirs. These days, inflation is rampant and job security is at an all-time low. So, put in the effort to gain knowledge about the latest opportunities that can give you better returns.

Also Read: What Makes Tax-Saving Exercise An Important Financial Planning Tool?

As the new financial year rolls out, make sure your money matters are sorted with careful tax planning and astute investments.

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