Tax Saving Mistakes to Avoid in 2022

Do you think March is a special month? Because you shouldn’t! As the financial year nears its end, people across India make the same mistakes again and again. As the Founder of Cube Wealth, I find bad tax-savings measures more annoying than Tom finds Jerry. I usually focus on ways to create wealth but, today I’ll talk about tax saving mistakes to avoid like the plague! You can consult a Cube Wealth coach or download a Cube Wealth app. 

Know What Your Taxable Income Is

If you are a salaried professional this is something you can do easily. You must look at your gross income and understand what your taxable income is. This is the income you are left with after all deductions. Look at what income you have to pay tax on after you’ve taken into account everything from your EPF, PPF, and Home Loan EMI to your rent and tuition fees, etc.

Never Invest Before Analysing

Not analysing all your options before investing for tax saving is like filling yourself up with starters at a buffet before seeing what the mains are; only this mistake will cost you much more than an unhappy palate. Speak to a wealth coach, get a financial advisor’s opinion, and invest only once you truly understand all your tax saving options thoroughly.

You can use our free mutual funds analysis tool to evaluate your current investment portfolio and make adjustments accordingly.

Try Our Free MF Analysis Tool

Think of Overall Asset Allocation

Saving tax is not the ultimate goal – it is at best a means to the end. The end being smart wealth creation. You need to think of how you are allocating your money to different assets. You may have gold, SIPs, Stocks, Bonds among other assets – these should align with your overall financial goal and timelines. Instead of adding funds to items that just save taxes, invest the same amount smartly, and enjoy the long term compounding benefits.

Start Investing Now

Don’t Break The Piggy Bank

A lot of people fall prey to using their emergency funds for mindless investments focused on tax saving. This is a big no-no! Your emergency fund should never be touched and if you don’t have one yet, you shouldn’t even be thinking about investing to save tax. Set up a fund that is set aside only for major emergencies and keep your tax-saving paws away from it. This kind of emergency fund setup is one of the first things we recommend to users on the Cube Wealth app as well.

Think Beyond Insurance

Investing only in insurance is an easy trap to fall into when you’re thinking about Section 80C. Sadly, that’s a terrible mistake to make. While you do need a good life insurance plan, investing in multiple insurance policies or investing in one just to get closer to your 1.5 lakh exemption limit is not wise. Insurance is for protection – that’s it! Not for saving taxes or investing. Don’t put all your money in insurance – your older self will hate you for it. You can consult a Cube Wealth coach or download a Cube Wealth app. 

Don’t Fall for ULIPS

A unit-linked insurance plan will probably do you more harm than good. Especially if you’re buying it just for the sake of saving tax. The thing is that the death cover offered by most ULIPs don’t give you a good cover despite fat premiums. If you’re thinking of buying insurance buy one based on your needs, not the one the insurance agent is selling you for commission.

Watch What You’re Getting Into

Big returns and high-pressure bank advisors can blind you. Always read the fine print. You may not want to get that big return when you realize it offers poor liquidity. You should know what lock-in periods you are looking at and invest only if you’re prepared to block your investment for that period.

Those are my top mistakes to avoid for anyone who is looking to save tax as the financial year comes to an end. More importantly, it is crucial to understand that the ultimate goal of your investments isn’t to pay lesser tax but to create long-term wealth for you and your family.

FAQs 

1. Is it necessary to start tax planning early in the year, or can it be done at the last minute?

Ans. It's advisable to start tax planning early in the year to have more time to explore tax-saving options and make informed decisions. Last-minute planning can result in missed opportunities and rushed decisions.

2. What are some key deductions and exemptions individuals often overlook?

Ans. Often overlooked deductions and exemptions include those related to health insurance premiums, education expenses, home loan interest, and contributions to retirement accounts like the 401(k) or IRA.

3. How can taxpayers ensure they keep proper records for tax purposes?

Ans. Maintaining organized records of income, expenses, and tax-related documents is crucial. This can be achieved by using financial software, filing receipts, and keeping tax-related documents in one place.

4.  What are some tax-saving investment options available in 2022?

Ans. Tax-saving investment options include contributions to tax-advantaged retirement accounts, investing in Equity-Linked Savings Schemes (ELSS), and considering options like Public Provident Fund (PPF) and National Savings Certificates (NSC).

Conclusion 

Avoiding tax-saving mistakes in 2022 is essential for maximizing your financial well-being. Early and informed tax planning can help you take advantage of available deductions, exemptions, and tax-saving investment opportunities. Failing to do so can result in financial losses and missed opportunities. You can consult a Cube Wealth coach or download a Cube Wealth app. 

‍

Here is an episode of The Cube Wealth show which helps you with ways to make your money.

Other Posts You May Like: