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Common Errors You Should Avoid While Investing To Save Tax

Common Errors You Should Avoid While Investing To Save Tax – Aegon Life - Blog

When the end of the financial year approaches, everyone rushes to buy tax saving investment plans in a desperate bid to save taxes. Although investing in tax saving instruments is a great idea, people end up taking some reckless decisions in a hurry to save taxes. Many people, still struggle with basic knowledge of investments when it comes to saving taxes. They often fail to remember that taxes are an incidental benefit and not a primary benefit of investing. This results in bad investment decisions that may eventually lead to hefty losses. Therefore, to help you avoid such costly financial mistakes, here are the few common mistakes you should avoid while investing to save on taxes:-

  1. Last minute investments: – Many people look upon tax saving as a ritual to be undertaken at the end of the financial year. In the haste to save taxes at the last moment, you will most likely end up with an investment plan which may not suit your financial needs. The mantra of safe tax saving investment, is to plan early in a systematic manner. For this purpose, you can start a tax-saving fund or keep aside a small amount every month in Pubic Provident Fund (PPF) or National Pension System (NPS).
  1. Investing the entire tax eligible amount in endowment plans: – Many insurance agents often recommend endowment plans for tax saving purpose, but only because they receive a high commission on it. What people don’t realise is that an endowment plan is a long-term product with a maturity period of 10-20 years. If you choose to redeem the plan early, you won’t even get the premium amount that you invested in it. Majority of the taxpayers end up investing their entire tax eligible amount of Rs 1, 50, 000 in endowment plans without thinking about other eligible deductions. Endowments plans such as Aegon iReturn are best for tax saving.
  1. Investing too much in FDs and NSC: – This is one of the most common mistakes committed by taxpayers. People are not aware of the fact that FDs and NSCs generally give post-tax returns that are lesser than the inflation rates. Moreover, the interest earned on both of these financial scheme is taxable. Which makes these investment tools a rather unattractive tax saving option.
  1. Limiting investments to only Section 80C:- The provisions under 80 C is are quite limited. People are not aware of the tax saving options beyond the Section 80C limit of Rs 1 lakh. Interest paid on housing & education loans, medical expenses, health insurance premium, etc. qualify for income tax deduction. Aside from these, donations towards social causes such as rural development, scientific research, and government relief are also eligible for income tax deduction. However, only the donations made to institutions which are approved under Section 80G of the Income Tax Act are eligible for tax deduction.

Simple Tax Tips for Beginners


Are you averse to the idea of paying a large portion of your income as taxes? If yes, then you are not alone. Most people feel the pinch while paying taxes every year. However, taxes are crucial for the development of the nation and cannot be avoided. Hence, certain provisions have been made by the government to reduce the burden on tax payers. One can take full advantage of exemptions, deductions, and rebates permitted by the Income Tax Act. The financial measures taken to minimize taxes is known as tax planning. It involves arranging your affairs in a certain manner that will help you save taxes. Here are few of the simple and effective tax planning tips:-

  • Utilizing Section 80C:- To encourage the habit of saving among the citizens of the country, the government of India allows certain deductions on the amounts invested in specified instruments under the Section 80C. The most popular investment instruments for the purpose of tax planning are:
  • PPF accounts
  • 5 year tax saving deposits
  • Equity mutual funds
  • Pension plans
  • Life insurance policies or term plans

Investing in these instruments wisely, can serve a dual purpose of meeting financial goals and tax savings concurrently. By Investing in these instruments you can bring down your taxable income significantly and save more of your hard earned money.

  • Salary Restructuring: – Many Companies allow restructuring a few salary components in order to reduce your tax liability. If you are in good term terms with your HR department, talk to them about getting certain allowances included in your salary. Opt for food coupons instead of lunch allowances, as they are exempt from tax up to Rest 60,000 p.a. Additionally, include allowances like medical allowance, transport allowance, education allowance, and telephone expenses as part of the salary as they are non- taxable.
  • Ask for House rent Allowance: – All employees generally receive a house rent allowance (HRA) from their employers. In case you don’t have this component included in your salary, ask your employer to do so. As an employee you can claim exemption on HRA under the Income Tax Act if you stay in a rented house and receive rent allowance from the employer.
  • Charitable donations: – Charitable contributions are deductible up to 10% of your income under Section 80G. However you must ensure that you obtain a receipt from the institution and a copy of their income-tax exemption certificate instead of giving away the donation without any acknowledgement. Only if you produce receipts of the donation, you will be eligible for tax deduction by contributing to a noble cause.