Income Tax Return (ITR) due date is extended to 31st December 2021. Many people without consulting tax experts invest in schemes that are popular among the individuals. Especially those who have income from salary there are very less ways to save tax for them. Lets have a look on the mistakes to avoid while investing for tax saving-
1. Not paying attention to lock-in period
Certain deductions under section 80C are subject to a lock-in period, such as fixed deposits, which have a 5-year lock-in period, and equity linked savings schemes (ELSS), which have a 3-year lock-in period. If the taxpayer violates the lock-in period’s limits, the income will be recognised as the taxpayer’s income for that financial year and will be subject to tax.
Long-term investments such as PPF, which have a 15-year lock-in period to qualify under Section 80C, would now be in a similar situation for taxpayers. As a result, it is recommended that taxpayers choose investments that would assist them in achieving their financial goals.
Read Also: Income Tax for NRI- Which Income in India is taxable and its tax rates
2. Taking a deduction for the repayment of a private loan
It has been noticed that taxpayers try to claim a deduction under section 80C for the repayment of any sort of home loan, but it is important to note that the principal component of private loans (loans from friends and relatives) is not covered by section 80C.
If a taxpayer wants to deduct the principal portion of a home loan, he or she must ensure that the loan was given by one of the specified businesses or persons (section 80C(2)(xviii)) (c). It includes loans from a bank, a cooperative bank, the National Housing Bank, the Life Insurance Corporation, and others.
Read Also: ITR: Mismatch in Form-16 and Form 26AS ?
3. Registration and stamp duty deductions in ITR
Section 80C allows stamp duty, enrollment fees, and a few additional charges that are directly related to the transfer of a residential home property (only). These expenses are not deductible under section 80C for commercial buildings. Therefore, taxpayers should choose their property type carefully when claiming a deduction under section 80C.
4. Making a mistake when claiming a tuition fee deduction in ITR
If a taxpayer is trying to claim a deduction for school or tuition fees, he or she must first review certain provisions. The deduction will be available for fees paid for full-time education in India for a maximum of two children, and it will only apply to the tuition fee portion of the total fee. So, before you provide any information, make sure you do some calculations.
Read Also: Income Tax on Provident Fund: New Rule to tax PF contributions & interest
5. An excessive amount of money is invested in endowment insurance policies
Endowment insurance plans are tax-saving life insurance policies that also serve as important investments. However, putting a significant amount of your hard-earned money into this will not yield positive results. Invest in a term plan, which is also qualified for a tax deduction under section 80C, if you wish to save more. In a rush to save money, the odds of making a bad investment selection are great. Treat these tax benefits as a perk, and never invest solely to save money on taxes.
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