Many people in India want to save income tax, but they often invest in a hurry without understanding the right way. Most employees wake up to tax planning only when the HR team asks for investment proofs in January or February. By that time, decisions are rushed and money gets locked in wrong products.
This guide explains common tax saving mistakes that one can avoid if opted for paying tax under the old tax regime.
You will learn where beginners usually go wrong, how these mistakes affect your hard-earned money, and what a sensible approach looks like in everyday Indian life.
Mistake 1: Putting the whole ₹1,50,000 only in endowment insurance
Endowment plans are insurance policies that give two things together – life cover and a maturity amount after many years. Agents often promote these insurance plans because they earn high commission from the premium.
In practice, a large part of your premium goes towards commission and insurance charges. Only the balance is invested. Returns from these plans are usually low compared to other options. Also, most endowment plans run for 10–20 years. If you stop in between, you may not even get back the money you paid.
Many beginners invest the entire 80C limit of ₹1,50,000 only in an endowment plan without checking what they already have. This blocks money for long years with limited growth.
Before buying any new product, first check what you already contribute:
- Employee Provident Fund from salary
- School tuition fees of children
- Home loan principal repayment
- Public Provident Fund
- Term insurance premium
Often these alone cover a big part of the ₹1,50,000 limit. In such cases, buying a costly endowment just for tax saving does not make sense. A simple term plan for protection and other investments for growth usually work better for beginners.
Mistake 2: Choosing tax-inefficient investments
A common habit is to put money in 5-year fixed deposits or National Savings Certificate (NSC) only because they give 80C deduction. The problem starts after the first year.
The interest from FD and NSC is taxable every year as per your income slab. So the real return becomes much lower. Many beginners feel happy with the tax deduction today but forget the future tax on interest.
If you are investing for long term, options like:
- Public Provident Fund (PPF)
- ELSS mutual funds
can be more useful.
In PPF, both the investment and the interest are tax-free.
ELSS has market risk, but over long periods it has generally given better growth than traditional deposits.
From practical experience, mixing safe options like PPF with some growth options like ELSS gives better balance than putting everything in FD just for deduction.
Mistake 3: Ignoring expenses that are already tax-free
Most people think only about 80C. They forget that many regular expenses also reduce tax.
Examples are:
- Children’s school tuition fees
- Health insurance premium
- Home loan interest
- Education loan interest
- House Rent Allowance (HRA)
The biggest confusion is about HRA. Employees living on rent can claim exemption based on salary, rent paid and city. Many forget to declare this to employer and end up paying extra TDS.
Some practical situations in India:
- If you live in parents’ house, you can pay rent to them and claim HRA.
- Parents can show this rent as income and get 30% standard deduction.
- If parents’ total income is below taxable limit, there may be no tax for them while you save tax.
This often confuses beginners at first, but the idea is simple – declare genuine expenses and don’t lose benefits that the law already allows.
Even if you missed giving details to employer, you can still claim them while filing your income tax return and get refund.
Mistake 4: Not showing loss from house property
Many home loan borrowers do not know about this benefit. For a self-occupied house, rent is treated as zero. But the interest paid on home loan can be shown as loss from house property.
This loss can be adjusted against salary or other income. If you don’t declare it, you pay more tax than required.
To claim this, you generally need:
- Interest certificate from bank
- Details of principal and interest paid
- Declaration to employer or while filing return
This single point saves a large amount for middle-class families, yet many miss it completely.
Mistake 5: Planning only in the last months
Tax planning in February is like buying an umbrella after the rain starts. Because of lack of time:
- People choose whatever agent suggests
- Money goes into wrong products
- Full 80C benefit is not used
- Investments don’t match life goals
Starting from April gives you time to invest monthly, compare options and align with goals like:
- Child education
- Own retirement
- Buying a home
- Emergency savings
Slow and steady planning usually gives better returns than last-minute panic decisions.
Conclusion
Saving tax in India is not about finding one magic product. It is about avoiding common mistakes and using benefits that already exist. Understand your existing deductions first, choose tax-efficient options, declare all eligible expenses, and plan early in the year.
We hope this article helped you understand common tax saving mistakes to avoid in a clear and practical way. To continue learning, you may also find our guides on HRA exemption and Section 80C planning useful.
✨ Also Read: Old Tax Regime Vs New Tax Regime – Comparison for Individuals
FAQs About Common Tax Saving Mistakes
Starting tax planning can feel confusing for many Indians.
These FAQs answer both basic and deeper questions that beginners usually ask after learning about tax saving for the first time.
Are fixed deposits and NSC bad for tax saving?
They are not bad, but they are tax-inefficient because the interest is taxable every year. This reduces the real return, especially for people in higher tax brackets.
I live on rent but forgot to tell my employer. Can I still claim HRA?
Yes. Even if you missed declaring it to your employer, you can claim HRA while filing your income tax return and get a refund if excess tax was deducted.
Can I pay rent to my parents and claim HRA?
You can, if the house is in your parents’ name and the rent payment is genuine. Parents must show this rent as their income, and they also get 30% standard deduction on it.
What is loss from house property?
If the interest on your home loan is more than the rental income (or for self-occupied house where rent is zero), it creates a loss. This loss can be adjusted against your salary to reduce tax.
Does the new tax regime allow these deductions?
No. Most deductions like 80C, HRA, and home loan benefits are available only in the old tax regime. You should compare both regimes before planning.
