6 Tax Saving Mistakes to Avoid in 2023

6 Tax Saving Mistakes to Avoid in 2023

Have you invested for tax savings?

Have you invested for creating wealth along with saving tax?

Most of the time you might invest without knowing the right features about that investment. I had a friend who took a Life Insurance policy thinking it as term insurance.

There was another incident where another friend who invested in tax saver fixed deposits without understanding the returns and associated tax.

Once you are clear on why you are saving tax, which instruments will suit you & associated bias in this investing, it will be easy to choose the right one.

Below are some of the tax saving investment mistakes which you may do:

  1. Tax saving Vs Investment
  2. Investing in safer instruments
  3. Not investing as tax saving sections exhausted
  4. Investing in E-E-E investments alone
  5. Investing in Tax saving/post office deposits
  6. Investing fully in Insurance

1. Tax saving Vs Investments

If you are planning to invest purely from the taxation point of view. You just have a limit of INR 1,50,000 and beyond which you cannot claim any benefit.

This claim can be done only under section 80C. You have Provident Fund, Tuition Fees for children, Life Insurance, Tax Saver Fixed Deposits, NSC, ELSS etc., comes under this section only.

Tax saving can be linked with an investment goal then you will start looking beyond tax purpose, then it’s a big mistake which you are doing unknowingly and repeatedly.

Client Story – One of the clients who is in 30% tax bracket started showing tuition fees & home loan principal for section 80C. He didn’t look at investing as he focused on closing down the loan faster. Now the children had grown up and his expenses had increased by default with increase in income. It has been 6 years since he thought of investing but yet to start.

2. Investing in safer instruments

If you are someone who has never invested in equities, or your parents had never invested in equities means then you may not look beyond tax saver fixed deposits.

Post office tax saver deposits, Tax saver deposits, NSC, Provident Fund, Life insurance providing guaranteed returns are all safer investing options. You know the invested amount and also the returns which you are going to take without big change in between.

Inflation needs to be considered while investing as that provides the actual returns an investment is generating. All the above safer deposits may not provide inflation beating returns. As RBI wants to control inflation lesser than 6%, the deposit rates will also be more or less the same. Considering other lifestyle expenses, it is ideal to consider investment returns in excess of 9-10%.

Client Story – One of my friends wanted to invest and was asking for options. He wanted only safer instruments which provides guaranteed returns. Only reason was that his father wanted him to invest only in such investments. Finally, he invested with National savings certificate in Post Office.

3. Not investing as tax saving sections exhausted

You have got Tuition fees, Provident Fund and home loans which will satisfy the Section 80 C investment limits.

This may be more than enough for the current financial year and for the next 5 years as you have home loans.

The objective of section 80C is to invest for your future and if you chose not to invest based on tax saving section, it will push you to work even in your 60s.

Client Story – This happened when I just quit my company. I was casually having a chat and topic changed towards saving taxes. He said he had taken a ULIP policy which takes care of section 80C. He needs to invest for his child education and retirement but as he had taken ULIP, he doesn’t want to think about investing right now as his tax saving sections got exhausted.

4. Investing in E-E-E instruments alone

Some of you may be looking this as an important feature for investing. Getting exempt while investing, while staying invested and at the time of exit.

Only the Life Insurance provides this kind of exemptions, and all the other investment products gets their interest taxed while exiting.

Hence the guaranteed interest is lesser, and it comes only after a longer period of time. 

Client Story – One of my friend’s fathers wanted to invest for saving tax but he wanted to invest only in E-E-E instrument. You will get exemption while investing, during the time of staying invested and while exiting. Except Insurance, you won’t have any other instrument offering such tax treatment.

5. Investing in Tax saving/Post Office deposits

The safer and easy way to save tax is to invest in tax saver bank deposits or tax saver Post Office deposits.

You don’t need to ask anyone and also it can be done easily by yourself.

The only point is, “Are you happy with the returns you get as you need to show the interest earned while filing tax?”. Your interest will be taxed based on the tax slab.

Client Story – This could have happened with you also. At the last minute this is an easy option to save tax. You can do with any of the banks over online itself.

6. Investing fully in Insurance

If you are someone who rely on your parents, you would have invested fully in Life Insurance itself.

Client Story – One of my friends wanted to invest and was asking for options. During the discussion he said that he had taken almost insurance policy worth 1,30,000 lakhs which he pays regularly. His father is an insurance agent, and he trusts only insurance as a safer option. Though he understood that his investment returns will be peanuts, he couldn’t change now.

Though you may not lose your money in any of the investments in section 80 C, you should be wise enough to choose the right tax saving investment to achieve your financial goal.

About the Author

Ganesan Thiru is an Author, Stock Market Profit coach, Research Analyst who has trained more than 10,000+ people in stock market investments & had done 90+ webinars in the last 15+ months He has 1800+ people in his Private Facebook group “Unlimited Wealth” & active in social media. His mission is to inspire one million people in getting financial freedom.

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