The winter is slowly waning and the spring is upon us. Sounds poetic, right? Well, the last quarter of the financial year is not a very pretty moment for those who struggle to calculate their taxes and file their returns. In these “taxing times”, what makes the situation worse are some pre-conceived notions about tax deductions. These notions are usually far from the new rules and regulations and as a result, prevent people from taking the right decisions. It’s important to debunk these myths and here are some facts you should replace them with.
Common Tax Deduction Myths
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Myth: You can manage tax planning on your own:
Reality: Well, no one doubts your capability to pull it off on your own but financial experts exist for a reason. What people think they are doing through online research and using a few mobile apps, is actually tax preparation and not planning. Tax computation and making the right decisions about
tax-saving investments is not a task that can be done in a couple of hours or by low-cost tax preparation services. For tax planning, you need the assistance of a professional to understand your income, your expenditure, future needs, and then draft a blueprint of what kind of tax-saving measures you should take. He/she is well aware of any recent changes or modifications in the existing rules and regulations and ensures that you are not missing something significant. So be smart and pay your CA a visit!
- Myth: Since my income is not taxable I do not need to make investments
Reality: In the nascent stage of our careers, we all have felt this way. “I don’t get paid enough to be thinking about investments,” is the oft-repeated lines. However, irrespective of income, you can always do some financial planning. Firstly, life insurance or medical insurance is a must simply because life is so uncertain. Secondly, making these low-cost small savings will gear you up for the future when the income will increase manifold and you will have to make bigger and judicious investments to save money on tax.
- Myth: My total home loan sum is tax deductible
Reality : You can claim a deduction of INR 1.5 lakh towards the payment of a Home Loan principal. Additionally, you can also claim a deduction of up to INR 2 lakh on the Home Loan interest. The first falls under Section 80C of the Income Tax Act while the second under Section 24. You can avail this benefit for more than one Housing Loan, however, the total amount claimed as tax deduction annually is limited to INR 1.5 lakh and INR 2 lakh only.
⦁ Myth: Home rent is eligible for tax deduction
Reality: Usually, employers pay you House Rent Allowance (HRA) and rent can be deducted from that component. But in case you do not get HRA, you can still claim a deduction on your rent payments under Section 80 (GG) if your house rent declaration is filed under Form 10BA and you don’t own a residential property. However, again note that not the whole amount paid as rent comes under tax deductions. Only a portion of it based on tax policies will be subtracted.
⦁ Myth: All contributions in PF are tax deductible
Reality: Wrong! Please remember that it’s a misconception and only the employee contribution to the EPF account is tax deductible and not the employer’s share. People who are under the impression that the entire PF contribution is tax deductible often refrain from making other investments and end up paying more tax because of computation based on wrong information.
⦁ Myth: Tax investments are only for those with surplus income
Reality: Well, again when the income is low it is quite human to believe that investments are for those who have surplus cash. But the majority of the earning population really falls under this category where they can take out a couple of thousand rupees every month for investments. Investments sound like they must be an expensive affair but in reality, you can opt for so many pocket-friendly investments like Mutual Funds, Term Life Insurance, Health Insurance, ULIPs etc. All you need to do is understand the tax-saving and return benefits of each and choose a few according to your budget.
Conclusion
Facts are sacrosanct but unfortunately, half-baked information and knowledge only help us in making poor financial decisions. To enjoy the maximum tax benefits each year and draw a better financial roadmap for the future, it is pertinent to know the rules and regulations well and not go by folklore.
