The deadline for making tax-saving investments for 2023-24 is March 31. With only six days left for the same, it is high time to do the tax planning to get more disposable income. However, in the rush to meet the deadline, taxpayers may inadvertently make errors that could prove costly in the future.
In the rush to secure tax savings, individuals may be tempted to heed advice from friends, family, or online sources without fully comprehending the implications.
Blindly following recommendations without understanding the intricacies of the investment can be risky.
It’s crucial to conduct thorough due diligence, assess the risks and returns associated with each investment option, and ensure that they align with one’s personal financial objectives.
Overlooking long-term financial goals for short-term gains
While the immediate goal may be to minimise tax liability for the current financial year, it is essential to consider the broader spectrum of long-term financial objectives.
Making impulsive investment decisions solely for short-term tax benefits can detract from long-term wealth accumulation strategies.
Neglecting documentation and compliance requirements
Amid the rush to meet the deadline, individuals may overlook the crucial aspect of proper documentation and compliance with tax regulations.
Incomplete or inaccurate documentation can lead to tax scrutiny, penalties, or even legal consequences in the future.
Failing to diversify investments
A common mistake made during last-minute tax planning is the failure to diversify investment portfolios adequately.
Placing all funds into a single investment avenue exposes individuals to heightened risks and limits potential returns.
Diversification across various asset classes can help mitigate risk and optimise returns over the long term.
Investing more money than required
In the last-minute rush, taxpayers may even indulge in panic investing or pool in more money in tax-saving investments than required.
This causes nothing but a disruption in future financial goals.
So, it’s best to first evaluate taxes already saved in the form of house rent, education loans, home loans, etc and then invest only the remaining amount.
Experts suggest using a reliable online calculator or seeking counsel from a tax specialist to help in computing this total investment amount.
Investing in products that offer low returns
Another mistake that taxpayers can make during this end-moment frenzy is investing/purchasing products that offer very low returns, are not liquid enough, or have high overhead costs attached to them.
Experts, hence, suggest opting for products that taxpayers have a fair knowledge about or can be exited easily.
Buying insurance policies to save taxes
Many people purchase insurance policies to save tax. However, experts believe that insurance and investments should not be mixed and it is always advisable to purchase a term plan and invest the balance in instruments that offer decent returns.
Source: https://www.cnbctv18.com/personal-finance/income-tax-planning-mistakes-to-avoid-march-31-deadline-ppf-fixed-deposit-investments-19364561.htm
As the deadline for making tax-saving investments for the financial year 2023-24 fast approaches, taxpayers must exercise caution and due diligence to avoid mistakes.