Common mistakes made at the time of tax planning
Some careful planning can go a long way in saving you tax. Whether or not you have planned your taxes for this year, this list will guard you from making some common mistakes.
Not maximising Section 80C limit of Rs. 1,50,000 – Section 80C allows you to deduct Rs 1,50,000 from your taxable income. A host of investments and expenses can be claimed under this section. Premium payment for term insurance policy, premium for ULIP, ELSS purchased, PPF investments, NSCs purchased, contribution to superannuation fund, etc. ; can all be claimed under this section. If you have not been able to fill your cup with these investments, several expenses that you may have already incurred will come to your rescue. School tuition fees for your children are eligible to be claimed under section 80C. Your employer deducts EPF @ 12% of your basic salary, this EPF contribution can be claimed under section 80C. If you have taken a home loan and don’t have sufficient funds to invest, claim principal repayments made during the year. Do make sure you have availed maximum deduction available under Section 80C.
Not choosing a right investment fit – Different types of investments meet different goals. Equity linked investments are more risky, while those linked to debt instruments or government bonds and yields are safe. Some investments have a longer lock-in period while some have a shorter lock in. If you foresee a fund requirement in the near future, choosing long range products may not be right. If you are in to equity markets, remaining investment beyond a 12 month period can make a lot of difference to your taxes. If you sell equities or equity mutual funds after a 12 month holding period, there is no tax on the capital gains. Investing in equities has high return & high risk, if you have a low risk appetite and don’t want erosion of your principal consider putting your money in debt funds.
Not taking tax benefit of interest paid towards education loan – Several youngsters or their parents take an education loan to cover the cost of higher studies. Interest paid for an education loan can be claimed as a deduction under section 80E. Several forms of higher education and degrees are covered, including vocational courses. If you or your parents took a loan to fund your studies, don’t forget to claim interest on education loan as deduction. Deduction can be claimed by the person who has taken the loan. Loan may be taken for oneself, one’s spouse or children, or even by a legal guardian. There is no limit on the interest that can be claimed under this section. This deduction is allowed for a maximum of 8 years or less if interest is paid in full before 8 years.
Not investing in Health Insurance – A visit to a hospital can almost burn a hole in our pockets. A small family’s annual ailment costs can run in into thousands of rupees. Consider purchasing health insurance for your family, which can secure you and your family from the costs of all health issues. Premium paid towards health insurance for self, spouse, children and parents can be claimed as deduction under section 80D of the income tax act.
Missing out on vital details while claiming donation as deduction under section 80G – A lot of people make a donation and hope to claim the full amount in their tax return. Not all donations can be claimed under section 80G. 80G specifies the list of donations that are eligible. Also, not all can be claimed fully, some are only allowed up to 50%. These donations must also be made via a cheque or a demand draft. Donations in cash are only allowed up to Rs 10,000. While making the contribution do remember to note down details such as name of the doner, PAN & address of the doner; deduction cannot be claimed in your tax return without these information.
Hope this helps you avoid these common mistakes and make the most of your tax saving!
This article is by ClearTax (www.cleartax.in), where Individuals and Businesses can e-File their I-T Returns online.
Tax disclaimer: Please note that the tax write-up above is for general understanding and reference. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information. Tax benefits/savings are subject to conditions of Section 80C, 80CCC, 80CCE, 10(10A), 10(10D) and other provisions of the Income Tax Act, 1961. Tax laws are subject to amendments from time to time. ICICI Prudential Life Insurance Company Limited expressly disclaims any liability to any person, if tax benefits stated above are denied to the customer.W/II/1307/2015-16