After the new budget for the fiscal year 2021-22, individual taxpayers have two options to choose from: the new income tax slab and the previous one (old tax slab). In the new tax slab, there are no deductions or exemptions that one can claim. While, in the old tax regime, one can still claim deductions and lower their taxes. If you are choosing the old tax regime and are selecting tax-saving instruments, here are some mistakes you would want to avoid:

  • Procrastinating and hurrying later in the last quarter
    When you are choosing tax-saving instruments, you want to choose instruments that help in building your portfolio. If you had procrastinated all year long and are rushing in the last quarter to save taxes, you are likely to take a hasty decision which you might regret later. Also, buying a financial instrument at the last minute would lead to not utilizing its fullest tax-saving benefits. Also, since these investments are usually huge one time, they might cause your financial budget to go haywire. If you live a paycheck-to-paycheck life, your finances would be affected terribly because of this last-minute decision. Instead, start at the beginning of your financial year so that you have enough time to choose tax-saving instruments that align with your financial objectives. Use an income tax calculator to get an estimate of the taxes payable and then plan accordingly. Researching and taking an informed decision will ensure that you can make the most of your investments.
  • Choosing tax-efficient investments
    A common strategy that most people prefer to save taxes is putting their funds in long-term fixed deposits (FDs) or buying national savings certificates (NSCs). These are one-time investments, and hence, you can make the claim only once in the year that you purchase it. However, the returns that you will get from these investments are subjected to taxes. This makes these tax-saving instruments inefficient over the long term. Instead, from the typical investments, you can choose other pension schemes and PPFs. These investments are recurring in nature, so you can claim deductions every year you pay. The money that you invest in them, along with the interest that you earn, are both tax-free. Choose your investment instruments carefully by analyzing their impact in the current and the upcoming financial years. Also, it is important to know the tax implications of the returns generated on these investments. Invest in tax-saving schemes, taking your age, financial goals, and risk appetite into account.
  • Ignoring expenses that offer tax benefits
    This is a mistake that many taxpayers make without realizing it as they are unaware of which expenses they can claim. Premiums towards health insurance, payment of housing loan, house rent, and tuition fees of children are some expenses that qualify as valid deductions. This benefit can be availed of only if you choose the old tax regime, as the new income tax slab does not have any room for deductions and exemptions. Falling to disclose these expenses would lead you to pay more taxes. Another common allowance that most salaried employees miss is House Rent Allowance (HRA). Most companies offer HRA to their employees and failing to disclose this in your tax returns leads to extra taxes. You can avail of tax deductions of up to Rs 2,000 every month from HRA in your income tax returns. Apart from 80C, there are other declarations that one can claim, be it interest on housing, medical expenses, education loans, or any social donations made. Here, the key is to be informed and well-aware of the tax implications of the expenses that you are incurring.
  • Not utilizing section 80C completely
    Under section 80C of the Income Tax Act, an individual taxpayer can claim deductions of up to Rs.1,50,000. However, several individuals cannot meet this limit or are simply unaware of it. Here, it is not mandatory to invest enormous sums to get the maximum claim. Instead, use online tools like an income tax calculator and get an estimate of the tax payable. Also, be aware of the rules regarding the limit that you can claim against each investment and expense under Section 80C. The premiums of your life insurance are exempt from taxes up to only 10% of the sum assured.

The more informed you will be, the better you can choose a tax-saving instrument. Know the current tax reforms and plan your taxes accordingly. Also, while filing taxes, choose the right ITR form from the different types of ITRs and fill it out carefully.