Five mistakes you must avoid while investing to save income tax

Five mistakes you must avoid while investing to save income tax

In Indian taxation system, income tax is one of the main types of direct taxes levied by the government. It is the tax that is levied under the regulatory guidelines of CBDT (Central Board of Direct Taxes), and is imposed by the government on income generated by businesses and individuals (including HUFs or Hindu Undivided Families) within their jurisdiction. An income tax is therefore the tax that is levied on the earnest monthly salary and it varies from one taxable slab to another. Section 80C of the Income Tax Act, 1961 allows exemptions for various investments which people undertake for saving on taxes. However, while planning to invest in order to save payable income tax, there are certain common mistakes, which must be avoided. Following is a list of these mistakes that you must avoid while investing to save income tax:

1.    Ignoring your specific needs and requirements: This is one of the most common mistakes that many people make. Before making any investment decision, you must make a list of your specific needs and requirements so that the right kind of matched decisions can be taken. Therefore, it is important to not follow what the others are doing but to take care of your own financial aspirations.

2.    Not choosing the right amount of investment: Underinvestment and overinvestment are both factors that you must avoid. The amount that you to choose to invest obviously depends on the earnest monthly income. Therefore, if you choose to invest in a particular instrument, you must do so after taking due care of meeting your needs and that of your loved ones. After doing that, the surplus amount must then be invested. However, investing the surplus completely must be avoided because you have to contribute towards the basic savings corpus as well as keep emergency funds available.

3.    Not exploring all options: Sections 80C, 80G, 80D and 80CCD are various sections that offer exemptions on options that range from investments in health insurance to contributions towards certain charitable or other institutions. Therefore, you must have a clear understanding of the legal Sections under which exemptions are being offered so that you can have a better grasp of the available options.

4.    Lop-sided investment portfolio: The ideal investment portfolio must consist of both the debt and equity instruments and even hybrid instruments. This ensures stable benefits over a period of time and ensures that all your funds are not tied up in a single investment option.

5.    Not taking due care of present commitments: This means that if you have invested more than the surplus, then the present day commitments or immediate financial goals may not be duly met. Therefore, it is important that you take due care of present commitments while planning your long term investments.

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