As the financial year ends in India on March 31, it’s essential to recognise and avoid common financial mistakes.
This past year saw a notable increase in income tax return (ITR) filings, with nearly 8.10 crore returns submitted for the 2023-24 fiscal year compared to 7.40 crore the previous year.
Despite this rise, only 6.7 per cent of the population filed returns, and nearly 4.90 crore individuals reported zero taxable income. While an increase in ITR filings reflects formalisation of the economy and increased compliance, low percentage of overall participation and high number of zero taxable income filers underscore the need for broader financial literacy and tax base expansion.
A recurring trend observed from experience is that many people neglect to plan their finances throughout the year and only begin to focus on taxes as the March 31 deadline looms closer. This last-minute rush to file taxes often results in individuals inadvertently paying more taxes than they owe. Several factors contribute to this issue, including a lack of tax planning, impulsive investment decisions, neglecting available deductions, and overlooking recent changes in tax laws. Furthermore, many individuals miss out on employer benefits and fail to utilise tax-free instruments. Common pitfalls also include incorrectly claiming house rent allowance (HRA) and more.
The failure to adequately plan for tax liabilities can lead to unexpected dues. It’s vital to assess your income, investments, and expenditures to maximize tax savings under various sections, such as Section 80C, 80CCC, 80CCD, 80D, and others. For instance, Section 80C offers deductions on investments, Section 80CCC covers insurance premiums, Section 80CCD relates to pension contributions, Section 80GG pertains to house rent paid, Section 80D addresses medical insurance, while Section 80E covers interest on education loans and Section 80G focuses on donations, among other provisions.
Another prevalent issue is the tendency to engage in last-minute investments, driven by the urgency to meet tax-saving limits. Such impulsive decisions often lead to poor investment choices. Instead, it’s advisable to assess your financial goals and strategise your investments throughout the year, utilising research-driven recommendations from your stockbroker or financial advisor. Relying on data and analysis is essential, as investing hastily in a declining market may provide short-term tax benefits but could result in significant long-term losses.
Stalling the filing of tax returns is another common mistake. Delays can lead to penalties and interest, further complicating your financial situation. Aim to file your returns well before the deadline to avoid these additional burdens. Keeping yourself informed about the latest changes in tax laws is equally important. Recent modifications in individual tax slabs, as noted in the Union Budget, highlight the necessity of consulting with financial advisors or chartered accountants to navigate the evolving tax landscape and optimize your financial strategy.
Moreover, it’s critical to take advantage of tax-free instruments like the Public Provident Fund (PPF) and the National Pension System (NPS), which offer valuable tax benefits. Many individuals overlook the employer benefits available to them. If your employer provides pre-tax benefits such as meal vouchers or employee stock options, take full advantage of these options to lower your taxable income.
While March 31 is a significant deadline, focusing on taxes can be shortsighted. It’s important to develop a habit of regular investing. Stock SIPs (systematic investment plans) through stockbroking firms and mutual fund SIPs are excellent long-term investment strategies. Additionally, if financial management isn’t your forte, leverage the research capabilities of your financial advisor instead of relying on potentially misguided tips from friends or neighbours.
Don’t forget the importance of establishing an emergency fund. Having adequate savings for unforeseen expenses is crucial before concentrating solely on tax-saving investments. Furthermore, maintain focus on long-term goals such as retirement planning by investing in instruments designed to provide retirement benefits.
By being proactive and mindful of these common financial mistakes, you can optimise your financial situation as the fiscal year draws to a close.
Source from: https://www.deccanherald.com/business/key-financial-mistakes-to-avoid-before-march-31-3459180
