Tax planning is essential, especially as we approach the end of the financial year. The last few days before tax filing are your last chance to make the most of tax-saving opportunities and avoid costly mistakes.
If careless, tax mistakes could lead to penalties or missed opportunities to save on taxes. In this blog, we’ll walk you through the top tax mistakes to avoid in India before the 2025 deadline, ensuring you maximize your savings and stay compliant.
Understanding the Indian Tax System
Before diving into the tax mistakes, it’s essential to refresh your knowledge of the Indian tax system quickly. The Indian government uses a progressive tax structure, where your income is taxed at different rates depending on your earnings.
Here are the primary tax slabs for individual taxpayers under the Income Tax Act:
Revised Tax Rate (in INR) Structure Under the New Tax Regime
| Income Range (in INR) | Tax Rate |
|---|---|
| ₹ 0 – 4 Lakh | NIL |
| ₹ 4 – 8 Lakh | 5% |
| ₹ 8 – 12 Lakh | 10% |
| ₹ 12 – 16 Lakh | 15% |
| ₹ 16 – 20 Lakh | 20% |
| ₹ 20 – 24 Lakh | ₹ 20 – 24 Lakh |
| Above ₹ 24 Lakh | 30% |
For the financial year ending on March 31, 2025, it’s necessary to utilize every available tax-saving opportunity before the deadline.
1. Not Maximizing Tax Deductions
One of the most common tax mistakes to avoid is not fully utilizing the tax deductions available under various sections of the Income Tax Act. There are several deductions you can claim to reduce your taxable income.
Key Deductions to Consider
- Section 80C: You can claim deductions up to INR 1.5 lakhs for investments like PPF, EPF, National Savings Certificates (NSC), life insurance premiums, and more.
- Section 80D: Health insurance premiums can be deducted up to INR 25,000 (for individuals) and INR 50,000 (for senior citizens).
- Section 24(b): Deduction of up to INR 2 lakhs on home loan interest for self-occupied property.
- National Pension Scheme (NPS): You can claim an additional deduction of INR 50,000 under Section 80CCD(1B) for NPS contributions.
Failing to maximize these deductions can significantly increase your tax liability. Tax mistakes to avoid here would be leaving these deductions unclaimed, as they offer substantial savings.
2. Ignoring Capital Gains Tax Planning
Taxpayers often overlook Capital gains tax, especially those investing in stocks, mutual funds, and real estate. Capital gains are classified into short-term and long-term categories, each taxed differently.
Key Tax Implications on Capital Gains
- Short-Term Capital Gains (STCG): If you sell assets like stocks or mutual funds within three years, any profit earned will be taxed at 15%.
- Long-Term Capital Gains (LTCG): If you hold the asset for over three years, the gains will be taxed at 10% (for gains exceeding INR 1 lakh in a financial year).
Not planning your capital gains tax can lead to hefty tax burdens. Ensure that you plan your asset sales with an eye on long-term capital gains, which are more tax-efficient.
3. Failing to Submit the Correct Form 16 or ITR
Form 16, issued by your employer, is one of the most important documents for filing your Income Tax Return (ITR).
It includes details about your salary, deductions, and the tax already deducted at source (TDS). Incorrect or delayed submission of Form 16 can lead to errors in your ITR, resulting in tax penalties.
Mistakes to Avoid with Form 16/ITR
- Mismatch in Form 16 and ITR: Ensure that the tax details in Form 16 match your ITR to avoid discrepancies.
- Late Filing: Late filing of your ITR can lead to penalties, interest, and missed opportunities for tax refunds.
Ensure your ITR filing is accurate and timely to avoid complications during tax assessment.
4. Overlooking Tax-Saving Investments for Retirement
Planning for retirement is essential, and tax-saving investments can significantly reduce one’s taxable income. Instruments like the National Pension Scheme (NPS) and Public Provident Fund (PPF) not only help build a retirement corpus but also provide tax deductions.
Mistakes to Avoid
- Not contributing to NPS: NPS contributions offer deductions under Section 80C and Section 80CCD(1B). Many individuals miss out on this double deduction.
- Not opening a PPF account: PPF is a safe and tax-efficient investment option for retirement savings, with interest income exempt from tax.
If you’re not already utilizing these retirement-saving options, now’s the time to start before the financial year ends.
5. Not Reviewing Your Income Tax Withholding (TDS)
Tax Deducted at Source (TDS) is essential to your tax planning. Often, individuals don’t realize that TDS may not always match their final tax liability. Overestimating or underestimating your TDS can cause discrepancies when filing your ITR.
Key Points to Review
- Check TDS deductions: Ensure your employer or other entities deduct the correct TDS.
- Mismatch with final tax liability: The tax deducted may be too high or too low based on your actual income.
Review your TDS regularly to avoid unpleasant surprises during tax season.
6. Not Filing Returns on Time
Failing to file your ITR on time is one of the most costly tax mistakes to avoid. The deadline for filing tax returns is generally July 31, but if you miss it, you can still file a late return with penalties.
Consequences of Late Filing
- Penalties: The Income Tax Department can levy a penalty for late filing, starting at INR 1,000 and increasing based on the delay.
- Missed Refunds: You may miss out on tax refunds if you don’t file your returns on time.
7. Missing Out on Tax Benefits for HRA and Other Allowances
If you’re a salaried individual living in rented accommodation, you may be eligible to claim House Rent Allowance (HRA) exemptions. This is one of the most commonly overlooked tax benefits.
Mistakes to Avoid with HRA
- Not claiming HRA: Ensure you submit the necessary rent receipts and landlord details.
- Exceeding the exemption limits: Check the rent receipts to ensure you don’t exceed the HRA exemption limit.
8. Not Considering Tax Implications of Salary Restructuring
Salary restructuring is another innovative way to reduce tax liabilities. It involves altering the components of your salary (such as bonuses, allowances, etc.) to maximize tax savings.
Common Restructuring Options
- Performance-based bonuses: Convert a part of your salary into a performance bonus to lower tax deductions.
- Salary allowances: Include allowances like travel, medical, and food coupons exempted from tax.
9. Not Consulting a Tax Professional
While online calculators and tax software can be helpful, consulting a tax professional is invaluable for personalized advice. A tax expert can help you identify the most efficient tax-saving strategies based on your unique financial situation.
Why Consult a Tax Professional?
Expert Advice: A professional can help you navigate complex tax laws and save more money. Avoid Errors: A tax expert ensures you don’t make common filing mistakes that could result in penalties.
Tricky, But Achievable
Tax planning can be tricky, but avoiding common tax mistakes is the key to maximizing your savings and staying compliant. As the financial year draws close, take the necessary steps to prevent costly errors and plan.
Don’t wait until the last minute—review your deductions, investments, TDS, and salary restructuring today.
Following these tips and consulting with a tax professional, you can manage your taxes before March 31, 2025. Start your tax planning today and avoid unnecessary stress down the road!
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