You have just a few weeks left to save tax as the Financial Year draws to a close. If you are a couple seeking an investment to save tax at the last minute, you must avoid these mistakes.
Otherwise, you will be stuck with the wrong tax-saving investment and lose money and time to get to your financial goals.
Archit Gupta Founder and CEO, Clear highlight some mistakes which couples must avoid when deciding on tax-saving investments:
1. Pick the wrong tax-saving investments
You must select a suitable investment to achieve your financial goals rather than save tax. Moreover, you must choose equity or fixed-income investments to save tax based on your time horizon and risk tolerance.
For instance, financial experts advise you to invest in equity investments to attain your long-term financial goals. You could opt for an equity investment such as ELSS, a tax-saving mutual fund.
It has the potential to offer inflation-beating returns over time with the added benefit of a Section 80C tax deduction.
However, if you are not comfortable with an equity investment, you could opt for PPF or the NSC. These investments focus on the preservation of capital and income.
Moreover, the more extended lock-in period ensures you stay invested till you attain your financial goals.
2. Neglect tax-efficiency of the investments
Many couples select tax-saving investments without looking at tax efficiency or the after-tax return of the investments. For instance, the tax-saving Fixed Deposit qualifies for the Section 80C tax deduction up to Rs 1.5 lakh per annum.
However, the interest from the tax-saving FD is taxed according to your income tax bracket. Compare this investment with the PPF, which qualifies for the exempt-exempt-exempt (EEE) tax regime. It means you get a tax exemption on investment, accrual, and withdrawal.
You must pick a tax-saving investment that gives you higher after-tax returns to reach your financial goals faster.
3. Avail life insurance plans to save tax
Many couples avail life insurance plans because they qualify for Section 80C tax deductions. However, you must avail of life insurance plans only if you have dependents.
Otherwise, you would incur higher premiums if you opt for life insurance plans like ULIPs and Endowment Policies.
Financial experts recommend looking at other Section 80C investment options that offer better returns than life insurance plans.
For instance, life insurance cum saving plans such as endowment policies provide lower returns than the NSC or the PPF.
It is because of the sizable commissions paid to the life insurance agents by the life insurance company for selling these plans.
Moreover, life insurance plans are a long-term commitment, and you must avoid them if mortality cover is not your core objective.
Couples must remember that tax-saving investments are a long-term commitment and picking the wrong ones lead to financial losses.
(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)