top of page

Plot no. 129/1 Industrial Estate Phase 1, Chandigarh


  • Kritika Chauhan

Common tax planning mistakes to avoid

Tax planning is a vital financial aim for everybody who wants to achieve financial success.

Beginning with the first day of employment and continuing virtually throughout one’s whole life, even after one has retired, tax planning is essential for everyone.

We have seen that people frequently fail to tackle tax planning logically and instead begin making tax-saving investments conventionally.

Tax planning through mutual funds is a common practice to save tax. Many mutual fund distribution agencies provide tax planning services as a part of their extra service.

But first things first. Always use an online tax calculator to know your tax liabilities. Simplyfisorsonline tax calculator is amongst the best tax calculators most widely used in India.

In this blog, we will analyse the most common tax planning mistakes that people do and should be avoided.

Doing tax planning late

Tax planning is something that many investors put off until the 4th quarter.When their employers request Section 80C and other investment proofs for TDS reasons, many investors wait until that point before beginning their tax planning.

In the last-minute hurry to make tax-saving investments before the employer’s deadlines, it is impossible to give adequate thought to these assets and their relationship to the investor’s financial goals.

A common occurrence is that investors make inefficient tax-saving investing decisions, which they later come to regret.

Most salaried investors are aware of the fixed component of their income before the fiscal year begins, and they are prepared to take advantage of it.

In addition, you are aware of the interest rate on your existing bank fixed deposits (if applicable). You can make some reasonable assumptions about your annual incentive and bonus based on the information you have.

This is a good starting point, and you may begin tax planning as early as April if you want to get ahead of the game.

Having this much time will allow you to thoroughly plan your investments and make sensible financial selections in the future.

Investing in tax-saving solutions in the last quarter

If you make tax-saving investments in the fourth quarter of the year, you will forfeit any interest or returns earned during the first nine to ten months of the year if you began earlier in the year.

For an investment of Rs 1 – 1.5 lakhs, this can be a substantial prospect. In the case of an annual rate of return on investment of 10 per cent, the value of ten months’ worth of returns on a one lakh rupee investment would be Rs 8,333. You could lose Rs 5–8 lakhs over the next 20–25 years simply by delaying your tax-saving investments until the last quarter of the fiscal year.

However, while some investors set aside a portion of their yearly bonus earned in February or March to make tax-saving investments for the following year, many investors may not have enough investible funds to make all of their tax-saving investments at the beginning of the year. Monthly systematic investment plans (SIPs) from your regular savings will allow you to earn returns on all of your monthly contributions while also benefiting from the compounding effect over time if you invest in mutual fund equity-linked savings schemes (ELSS).

Thus, it is always wise to use a Tax Slab Calculator beforehand and do systematic planning based on your tax liabilities. You can also consult Simplyfisors that also provide tax planning services apart from being a mutual fund distributor.

Choosing ELSS based on recent performance

Based on the recent performance of the funds, many taxpayers decide to invest in ELSS, which provides a Section 80C tax benefit to the investor. It has been observed that the top-performing schemes do not necessarily continue to be the top-performing schemes the following year. As a result, while selecting the appropriate ELSS, avoid making the error of selecting winners of the day rather than looking at long-term performance. Closely monitor the performance of various funds. As Paul Samuelson, a famous American economist said.

“Investing should be more like watching paint dry or watching grass grow.” Thus, look for long-term goals and performance.  You can also consult a mutual fund distribution agency to get the best advice on investing.

Not aligning tax savings with the goals

The majority of tax-saving investments, such as PPFs, Ulips, and life insurance, are intended to be held for a lengthy period.

When investing in any of them, avoid making the error of putting money in merely to avoid paying taxes.Connect tax-saving investments to a long-term aim to prevent selling before accomplishing the goal.

The lowest lock-in period of three years is offered by ELSS, but the investment should be tied to a long-term goal. After the lock-in period has expired, you may continue to make investments in ELSS funds.

Ignoring risks

While you are attempting to save money on taxes, there are tax savers that can assist you in lowering your tax liability while also giving you additional protection. Tax deductions are available for premiums paid for term insurance and medical insurance.

To protect against health and life risks, determine the amount of coverage that is required and then get term insurance as well as health insurance for everyone in the family. As mentioned above, consider hiring an expert who can assist you in managing all these things.

Keeping an eye on asset allocation

Even if you save money on taxes, you should avoid going overboard and investing entirely in one asset class or asset class combination.

For short-term objectives, a bank FD with tax benefits or an NSC may be ideal; but, for long-term objectives, such as retirement, NPS, Ulips, or ELSS may be the best options available.

It will be easier to mitigate risks and achieve the intended goals if you have a diverse portfolio of assets. It is also important to keep a sharp eye on the latest trends and performance of the funds. Simplyfisors is a leading mutual fund distributor in India that provides up to date information about various funds on its website.


The systematic investment plan (SIP) has become a popular means of making investments.But if you want to save money on taxes by investing in ELSS, you should be aware that each SIP instalment is subject to a 36-month lock-in period.

A SIP created in March, on the other hand, might not result in considerable tax savings for the current fiscal year.

The principle of paying the advance home loan

Redeeming a portion of the principal on your home loan in the fiscal year 2020-21 is a good idea, but remember to claim the tax deduction. According to Section 80C, the principal balance of the EMI is tax-deductible, whereas the interest paid is tax-deductible under Section 24.

If you would like to avoid these common tax-saving mistakes and buy mutual funds for tax saving, you can visit the website

4 views0 comments


bottom of page