Rushing to make last-minute tax saving investments? Avoid these mistakes

The lesser the tax one has to pay, the more disposable income one has. As we all know that March 31 is the end of the financial year, it is high time to make tax-saving investments to get more disposable income. However, in this last-minute rush, individuals can commit mistakes that could prove costly in the long term.

Here are some of those mistakes which must be certainly avoided:

Indulging in panic investing

In the last-minute rush, many individuals indulge in panic investing or pool in more money in tax-saving investments than required. This causes nothing but a disruption in future financial goals.

Here, Saurav Basu, head - wealth management at Tata Capital asks people to first carefully evaluate taxes already saved by them in the form of house rent, education loans, home loans, etc and then invest only the remaining amount.

"Individuals can also use a reliable online calculator or seek counsel from a tax specialist that will help them in computing this total investment amount," Basu suggests.

Not looking at consolidated income

At this point, it is also important to look at consolidated income before making any investment decisions which many avoid doing.

As per Basu, consolidated income means incomes from all the other income heads that become a part of the annual tax computation along with salary/ profession.

"An analysis of the total taxable income and close study of the benefits of Section 80C can help individuals in investing their money in a lot of other instruments than would be traditionally available if only their annual salary/ fees/ business profits were considered,” he advises.

Investing in products that offer low returns

According to Basu, one of the biggest mistakes that investors make during this end-moment frenzy is investing/purchasing products that offer very low returns, are not liquid enough, or have high overhead costs attached to them.

"Since investors during this period have very limited time to research the vast array of options available to them, mistakes are inevitable. Thus, in order to play it safe – they must always opt for products that they have a fair knowledge about or can be exited easily. Further, it is always prudent to diversify investments as far as possible to hedge themselves from potential losses if any," Basu stresses.

Making investments without proper planning

While making an investment many people forgot to check its rate of return.

According to Kapil Rana, founder & chairman, HostBooks Ltd, the rate of return on investments like PPF, FD's is readily available on websites, advertisements, etc. But the rate of return on investments like ELSS, ULIP, etc. whose values are fluctuating on daily basis is uncertain.

So, while making the investment in these, Rana suggests that an individual must check whether their returns are quite enough if they are compared with the return on other investments.

Investing without financial goals

An individual must not spoil his/her financial goals for investing in tax-saving schemes.

Rana asks people to invest in products that will help in achieving long-term financial goals as all tax-saving investments have some lock-in period which may be from 3 years to 15 years depending upon the source of investment.

Not being aware of various deductions under section 80C

Before making an investment, as Rana says, an individual must be aware of the various expenses which qualify for deduction under section 80C such as tuition of fee any two children, housing loan repayment, etc.

With this, an individual can check whether the entire limit of Rs 1.5 lakh has been exhausted or not before making any new investment.

Buying insurance policies to save taxes

According to Abhinav Angirish, founder, Investonline.in, many people purchase insurance policies to save tax.

However, Angirish believes that insurance and investments should not be mixed and it is always advisable to purchase a term plan and invest the balance in instruments that offer decent returns.

Not taking the help of a professional financial advisor

Before jumping on the tax-saving bandwagon, many individuals don’t take the help of financial advisors.

As per Angirish, professional advisors can help in identifying the right investments based on financial goals and individual risk tolerance. So, it’s important to consult them.