You are doing wrong saving of TAX if you are making these mistakes.

Or how not to save your TAX?

Yes, guys, the title is confusing as why should you not save on income tax if you have benefits available under 80C 24B, etc..

First, let me just tell you this is not the same in all cases, that you may end up paying more by investing in a tax saving scheme.

As of now FY 2024-25, you already have 7 lac as basic exemption limit (Not for NRI) in addition standard deduction is also available for Rs.75,000/- in case of salary.

I will not discuss here how much tax saving you will make in case if you choose old or new slab, but instead of going for the traditional plan of Life insurance by paying 1.5 lac each year and getting some dumb amount at maturity you should choose the
  “Term Insurance “.

Yes, in traditional plan you will not receive over 5% or even less. Most of the individuals depend upon the advisor for insurance, and because of lack of awareness advisor may push them into the traditional plan, as in that case advisor receives 35 to 45 percent commission from the first premium.

Instead of buying and completing the full quota of 80C, i.e. 1,50,000/- by purchasing life insurance, opt for term insurance only. By that way, you will get the best cover for your loved ones (your family). Let me explain this with an example

INR 1.5 lakh paid in annual premium towards a typical LIC policy will give you INR 15 lakhs of life insurance coverage, whereas INR 25 thousand annual premium paid towards a term life cover can fetch your insurance coverage of INR 1 crores or more depending on your age. For a family which loses a breadwinner, this difference can make all the difference. A sum of INR 1 crores kept as fixed deposits at a bank will fetch the family an annual interest income of INR 7.5 lakhs.

By this way you will save 1.25 lacs which you can invest in monthly SIP for Rs.10,000/- for a long period around 20 years, which will give you the return around 1cr @ 12%.

Now you understand by paying more tax on Rs. 1,20,000/- (Not investing 1.5lac in 80C) which may be around 12,000/- (@10%) or 24,000/-(@20%) or in highest case 36,000/-(@30%) it may prove costly in future year. Or you can also opt for Tax Saver ELSS SIP @ 10,000/- and complete

What other factor you should keep in mind while buying a term plan,

a. Never by plan for your child or wife if they are not earner for the family. Always add the amount to your insurance premium if your wife or child is not an earner for the family. By following that approach, you can increase your sum assured limit.

b. Add riders such as accidental death benefit, permanent and partial disabilities cover, critical illness cover, etc.

c. Take advice of good and ethical planner. (Its hard but not impossible, Haaa!)

I have seen this throughout my practice people doing wrong investments and not achieving the financial goal, apart from this one of my client has adventured for home loan and second house for getting the tax benefit. After almost 10 years, the property rate has increased little in the Mumbai city area where my client has bought the flat. He Booked 1BHK paying around 75Lac which is now around 95Lac as per the current market. If my client had kept the same amount in a fixed deposit, it could have doubled in 10 years. Just imagine the stamp duty paid, interest paid on loan plus maintenance and property tax paid lastly the capital gain tax while selling this property. Humm, you can imagine the return on investment.

There will be several benefits just not to buy a second home just for saving tax or getting rental income until it will prove more costly. Some place may be an exceptional case also, like in some cities, the property prices have increased exorbitantly in past years but now for the place where I live this will be the bad idea.

Apart from it, people are doing PPF, NPS, etc. just for tax saving, for them I will advise that instead of saving make some plan on how much you should save, draw the goal and link that saving to your goal with SIP. Examples include child education, children’s marriages, and family foreign tours.

One Tip here, I have practice of buying of gold coins every year on my daughter’s birthday. This practice had stared from the first year and now she is 14 i will continue to do this till she gets married, so as per our tradition I can gift her a good amount of Gold in her marriage without bothering much.

Since most of my clients fall within an income tax bracket of 5 lakhs to 15 lakhs, I strongly recommend that they opt for a new regime. But it is always advisable that tax saving is not a do-it-yourself project, so always seek professional advice.