- Health insurance should be an essential component of your tax plan
- If you fail to mention all your credible income sources while filing returns, it is deemed as an act of concealment of income and could cause troubles later
- There are multiple transactions which are liable for tax returns, but you may fail to incorporate them due to little or no knowledge about them
Tax Planning can get tedious and complicated if not done well in time, as you have to be cautious while choosing the right instruments. There could be a lot of permutations and combinations to maximize returns while you save your taxes. Whether you like it or not, but you need to master the art of tax saving, considering its perennial nature. To help you better with this, we list three common mistakes taxpayers tend to make every year while planning their taxes:
1. Ignoring Health Insurance:
When choosing instruments for investing, you often consider factors like lock-in period or returns of investment. But it is important to realize that all investments are not meant to be about profits or wealth creation. Covering for future health uncertainties is essential too. And what’s better than being able to cover health and save tax at the same time. Under section 80D, you can claim for tax benefit on premiums paid for health insurance. This rule applies to the health insurance of your immediate family members as well. Hence, health insurance should be an essential component of your tax plan.
For the premium paid for yourself, spouse or dependent children, avail a maximum deduction of Rs 25000. You can also avail additional deduction of Rs 25000 for the premium paid for parents. If the policy is for a senior citizen ( 60 years or more), then there is an additional limit of Rs 5000.
In case of HUF, you can avail a maximum deduction of Rs 25000 for the premium paid for any member. If the insured person is a senior citizen, then the above maximum limit of Rs 25000 will be increased to Rs 50000. You can claim a maximum deduction of Rs 5000 for a preventive health check-up.
2. Failing to mention all income sources:
More often than not, you tend to get in the habit of exempting the transactions and incomes that do not fall under the taxable category. Some of them include interest on the fixed deposit, interest on savings account. If you fail to mention all your credible income sources while filing returns, it is deemed as an act of concealment of income and could cause trouble later.
3. Not looking beyond Section 80C and Section 80D:
One of the most significant mistakes that we tend to make is not looking beyond section 80C and section 80D of the Income Tax Act. Some of the other elements which you can include while planning your taxes are; house rent allowance, donations made towards charity, interest paid on loan or higher studies, expenditure on medical issues of a disabled person to name a few. There are multiple transactions which are liable for tax returns, but you may fail to incorporate them due to little or no knowledge about them.
For instance, the maximum deduction that you can claim under section 80EE for payment of interest on a home loan is Rs 50000 p.a. Even rent paid for accommodation under section 80GG is tax deductible. The deduction amount will be lower of the three- rent paid above 10 percent of salary (Basic + D.A.) or 25 percent of the total income (before subtracting any deductions) or Rs 5000 p.m.
Hence it is crucial that you have a thorough understanding of the transactions for which you file returns. It is advisable to visit a financial consultant to understand these provisions in a better manner. Also, consider insurance and other investment plans that fall under the deduction category.
