Tax planning blunders to avoid!

1. You remember to save your taxes only at the end of the year.

If you wait until the last minute to save taxes, you will miss out on the cost-averaging opportunities for the entire year. Not to mention that it will place a significant strain on your cash flow near the end of the year, potentially jeopardizing your savings.

2. Incorporating insurance and investment products in one.

Insurance provides peace of mind, while investments help to grow one's wealth. Keeping these separate is the best way to ensure that each rupee performs optimally. Combining these will negate any progress your money could have made. Choose wisely and avoid combining insurance and investments, no matter how tempting it may seem.

3. Not taking your liquidity needs into account when selecting a product.

Liquidity is something that is definitely hampered when choosing tax-saving investments, so make sure you are aware of the liquidity and lock-in periods before investing. Because there is no way to withdraw the invested amount, make sure you are not relying on it to cover any upcoming expenses.

4. Not utilizing all of your tax-saving options

Utilize all of the tax breaks available to you in order to maximize your cash in hand while minimizing your tax outgo.

Remember that investments can be recovered, but taxes are lost forever. Use all applicable categories to save as much tax as is legally possible.

5. Overinvesting in tax-saving products without first determining how much you need to invest.

Another common blunder is overinvesting in tax-saving products without considering how much is actually required.

For example, if your employee provident fund contribution is 50,000 in a fiscal year and you have contributed 50,000 to the public provident fund, you would only need to invest another 50,000 to reach your 80-C limit, rather than the additional 1,50,000 that is commonly assumed to be the "correct amount to invest" in tax-saving products.

Make sure you calculate how much you need to invest and then invest in tax-saving products.

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