Once again, it is the time of the year when we start planning our taxes and returns! Moreover, with the demonization that took place in the last quarter, and the new budget in place, there might be a need to make some alterations, hence, a little more rigorous planning!
If you look at it closely, tax planning should not be only about saving taxes and finding the ways to do so, when the return filing is nearing. It should actually be a round the year planning, where you plan your investments prudently, not only to save taxes, but to reap higher returns from those investments.
Before we start to discuss the mistakes that you must not make with your tax planning in the year 2017, let us take you through the major developments pertaining to taxation, in Union Budget 2017-18
Amendments And Developments Pertaining To Personal Income Tax
- Existing rate of taxation for individual assesses between income of 2.5 lakhs to 5 lakhs reduced to 5% from the present rate of 10%
- Surcharge of 10% of tax payable on categories of individuals whose annual taxable income is between 50 lakhs and 1 crore
- Simple one-page form to be filed as Income Tax Return for the category of individuals having taxable income upto 5 lakhs other than business income
- Appeal to all citizens of India to contribute to Nation Building by making a small payment of 5% tax if their income is falling in the lowest slab of 2.5 lakhs to 5 lakhs.
Introduction of Goods And Services Tax (GST)
- Passage of the Constitution Amendment Bill for GST and the progress for its introduction was one of the key developments of Union Budget 2017
- The GST Council has finalized its recommendations on almost all the issues based on consensus on the basis of 9 meetings held
- Preparation of IT system for GST is also on schedule.
- The extensive reach-out efforts to trade and industry for GST will start from 1st April, 2017 to make them aware of the new taxation system.
Now, keeping the above developments in consideration and to make our tax filing a hassle-free task, we must know certain DOs and DON’Ts.
- Do not consider Tax Filing one time activity, for the last three months of the financial year, but smartly plan the finances, investments and taxes throughout the year.
- Do not make investments just to avail tax deductions, but invest sensibly in various avenues which hold relevance to your real needs.
- Do not invest a lot in debt based fixed income instruments such as public provident funds, employee provident funds, and fixed deposits etc. It may not be good for your overall return file. It is advisable to keep the debt-equity ratio balanced. If your debt part is going larger, try and invest more in equity instruments to bring your folio to a balance.
- We all are aware that we can claim a deduction up to INR 1.5 Lakh under section 80C. That is not the end. We can claim the deduction on premiums paid for health insurance based products too. It will be a good move to make a timely investment in such insurance products, thereby, saving on taxes plus buying security for your life and health. Not having an insurance in the year 2017 will be a huge mistake.
- Not knowing about other avenues of saving tax is a big mistake. If you are involved in philanthropic activities such as donating to non-government organizations, political parties, rural development and other government relief works, you can always claim a tax deduction against such donations. You must look beyond section 80C.
- You must not invest lump sum amount in equities to save taxes. Equity linked saving plans offered by mutual funds are definitely entitled for tax deduction, but investing in one go is a wrong move. One huge lump sum amount invested is prone to higher risks. You must spread your equity investment throughout the year as a protection against the risks, and still reaping on tax deductions.
- Making an investment in endowments insurance plans especially in the tax saving season is a big mistake. You will end up paying higher commissions on the products which may bring a little benefit. Make such investments in the starting of the financial year when you can have an endowment plan of your choice without paying extra commissions unnecessarily. Also, be aware that the endowment plan is a long-term product with a maturity period of 10-20 years. If you pay premium for five years only and then redeem the investment, it’s likely that you will get less than even your principal as a part of the endowment plan premium goes towards mortality charges and distributor commission.
Apart from the above investment related mistakes, here are few functional and execution mistakes that need to be considered.
- Do not make a mistake of not filing and paying your tax returns in time. Save on time, money and efforts and file in time.
- Never miss out on any deductions that you may qualify for. Appoint a good CA to look into your accounts thoroughly. Depreciation, out-of-pocket-expenses, auto expenses, office improvements, house rental payments and many such pay-offs are entitled to deductions.
- Do not commit the most critical mistake of not being organized for your tax filing. Keep your record-books and account-books in order and up to date. Any missing records, or missing supporting documents may lead to penalties and loss of money.
- Do not make a mistake of not hiring a professional bookkeeper or accountant throughout the year and hiring just at the tax return time.
Filing for taxes and making appropriate returns is not an easy task. But, if you work prudently throughout the year, invest smartly, hire adequate help and plan everything in time, you can become nation’s smartest tax payer without any hassle.
Make it happen for the year 2017!