As the D-day to get done with your tax-planning exercise for the FY 2017-18 i.e March 31st is finally here and you are now left with limited time, chances are that you may either go overboard with your investments to save tax or go wrong elsewhere. So, here are suggested some mistakes you must take care of:
1. Do not over-commit: Experts suggest to not commit to any of the financial schemes just to save tax as you will have to service the payments towards them in future course as a minimum contribution as in PPF, Sukanya Samriddhi, NPS scheme etc or to redeem maturity and other benefits like in insurance investment products. So, do give a second thought before making any investment commitment in haste.
2. Stick to goal based financial planning: Though not easy as it sounds, your tax planning exercise and financial goals should go hand in hand as tax-saving is just a secondary benefit you get out of committing your savings to different investment options. This said you should not invest in a single product and look at all other parameters such as liquidity, risk and your financial goals when zeroing in on an investment product for tax planning.
Say for instance, do not put all your money in PPF as the scheme comes with a lock-in and you may face liquidity issues.
3. Factor risk and liquidity criteria: If you cannot afford or do not have the appetite for risk, do not take risky bets just because the investment product yielded decent returns in the past. So, acknowledge your risk appetite and risk associated with the investment option before taking any decision, millenials with moderate risk appetite can still invest their money in ELSS.
Likewise, depending on the timeline of your financial goals i.e. whether they fall in the medium or long term commit to investments. For eg: If your financial goal is 5 years down the line then it shall be pointless to invest in long-term avenues such as insurance policy, ULIP, NPS etc where as other avenues 5-yr tax saving deposits, ELSS can be a better option.
4. Do not over invest: First and foremost do make note of all the investments you have already made in a year that are eligible for deduction upto the limit of Rs. 1.5 lakh u/s 80C. Say for instance, life insurance premium paid for current policies, contribution towards EPF if you are a salaried employee, PPF investments etc. Likewise expenses such as children school fee, home loan principal repayment amount etc can be accounted for.
And if there is any shortfall from the prescribed limit of Rs. 1.5 lakhs after summing up all these payments then only you should go hunting for a tax-saving investment option.