Making investments to save the tax has been an all-time practice by the people. But are these investors really aware of the repercussions which they could face if done without caution? Here, we endeavour to protect the investors by making the basic five mistakes and making their investment painful instead of profiting them. Investors should be extra cautious while investing and take care of any mistake which could spoil their enormous hard work and future plans.
Data fetched from the Aspiration Index of Bank Market reveals that almost 91 per cent of Millenials of this era, falling in the Age group of 25 to 35 years, manage their finances themselves. They want to rely on themselves and thus manages to keep all sort of transaction records and Accounts under their control. Due to the widespread awareness, this has become possible and the system has grown as a culture that from the process of wealth creation to managing debt and everything else could be kept under the control of the investor himself without relying on any other helping source. Well, Wealth Management is a good practice and Tax saving is one of the incredible parts of Wealth management.
Well, keeping this fact in mind that there is a short time left in the closure of the Taxation period, we are providing our reader investors with the Five mistakes which are commonly made by people while making investments to save tax and which should be seriously avoided to get taxed tax efficiently.
Delay in Interest Payment Against Loan & Not Following 80E of IT Act
Under Section 80E of the Income Tax Act the provision is there that on the payment of interest amount against any education loan, the customer gets benefits in terms of tax deductions. Thus, make haste in the payment of your loan as avoiding this you are not just increasing the interest burden but also are missing the tax benefits which could come your way. The Timely payment of the tax interest would not just reduce the whole payable amount but also would improve your credit score.
Investing in Single Tax Saving Product
As we know it is quite obvious that different investments hold different risks and have different deadlines. Investing heavily in a single instrument is not wise and may imbalance your portfolio. People invest in market-linked products which bring with them different risks. Thus, to avoid the risk and lower the chances of heavy loss, diversification is the only key which not only reduces the risk but also makes the investor gain proper knowledge of portfolio management and makes the complete portfolio secure.
Explaining with the Help of an Example
The Tax saving investment portfolio should be a balanced mix of debt. For example, If an investor invests in PPF then the ROI would be limited to 8%, likewise, if an investor makes a heavy investment in ELSS, then the risk related to this investment would solely depend on the market risk attached to that particular entity thus increasing the risk level. Thus, as we mentioned earlier, the tax-saving investment portfolio should be a perfect mix of debt.
Read Also: Why is Buying A House Jointly More Income Tax Beneficial?
Waiting For The Last Time
Avoid waiting until the last time. Tax planning is a year-long process and making haste and raising your head at the last time could turn stones down and would increase the chances of mistakes. Investments done with the motive of tax saving are a long-term affair and should be done only after thinking properly or taking the advice of the agents or people having knowledge in this area.
Your tax saving needs should never dominate your investment needs, this could be adopted as a Golden rule for investment. Tax saving should always be kept as an additional benefit thus first evaluate your needs on the parameters of the risk capacity you could adhere to, the target you have fixed and for what time frame.
