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5 tax saving mistakes millennials need to watch out for Income Tax Saving
March, 19th 2019

Millennials today manage their own finances. BankBazaar’s Aspiration Index’ data suggests 91% of India’s millennials between the age of 25 years and 35 years manage their own finances. From creating wealth to managing debt, millennials have it all in their grip, thanks to the widespread awareness. And tax saving is a crucial part of wealth management. Considering we are only left with a few days to go for the tax season to come to an end, here is a list of mistakes one must avoid to ensure effective tax planning.

Not claiming tax benefits u/s 80E
Interest payment on education loan is eligible for tax deduction under Section 80E of the Income Tax Act. So, if you have been delaying payment of this loan, you are not just increasing your interest burden but also letting go of income tax relief. Timely payment will reduce the outstanding amount and improve your credit score.

Investing everything in a single tax-saving product
The risk and tenure associated with different tax-saving investment is different. And too much investment in a single instrument can lead to imbalance is one’s portfolio. Diversification is important to build a line of defence against the risk associated with market-linked products. For example, if the entire fund is invested in PPF, it will limit the ROI to around 8%, whereas overinvestment in ELSS can shoot up risk exposure. Therefore, the tax-saving investment portfolio should be an appropriate mix of debt and equity.

Emptying of liquid funds to invest in tax saving schemes
Last-minute rush in saving taxes makes even the best of us to resort to desperate measures. Losing all liquid funds to invest in tax saving instrument is not a good idea. Liquid funds could come handy in tacking adverse financial situations. If you have an emergency fund separately set aside, you can go ahead. Liquidity is key in crisis management and you don’t want to break your other funds which are directed towards bigger purposes.

Waiting until last minute to make a tax-saving move
Tax planning is a year-long process and waiting until the last-minute can increase your chances of making mistakes and taking hasty decisions. Considering most of the tax-saving investments are long term, you don’t want to land up with one without putting much thought into it or misled by agents, acquaintances etc.

Don’t let tax-saving requirements overpower investment needs
Moreover, don’t let your tax-saving requirements overpower your investment needs. Assess your needs basis your risk appetite, goals and tenure, and then opt for tax saving as an additional benefit, in that order, before you chose your investment instruments.

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