Tax Deduction Myths Busted For You

By Kishore Sabareeshan | January 31, 2019

Think you’re tax-savvy? Here are some common investment-related tax myths busted to give you a clear picture!

Thinking about tax can be quite taxing, especially if you’re drawn to it out of necessity rather than interest. But don’t fear! We’re here to add clarity to your understanding of tax.

As earning individuals, we often hear a lot of talk about making investments that will help us save on tax. But how many of us take this for granted? What are the implications of not having an investment roadmap at all?

We’ll address these concerns as we take a closer look into the common myths and misconceptions people have about tax-saving investments. Let’s go!

Additional Reading: Are Your Investments Tax Efficient

Myth 1: My Salary Is Low, Hence I Don’t Need To Make Tax-Saving Investments

If you agree with the above statement, you’re not alone. However, it may not be the best perspective to have. If you feel financial planning is not required at this stage in your life, you may just never commit to it in the future either. Besides, investing in low-cost schemes can always be useful. An investment such as a Life Insurance policy is ideal at this stage.

Myth 2: Any PF Contribution That Goes Into My EPF Account Is Tax Deductible

This is not entirely true! While your contribution to the EPF account as an employee is tax deductible, the share contributed by your employer is not. It’s this very misconception that makes most of us lazy to look out for other investments since we feel we’ve got it made with just our EPF account.

Additional Reading: How To Pay Lower Tax And Earn More On Your Investments

Myth 3: The Total Rent I Pay Is Tax Deductible

This misconception leaves room for a lot of confusion and clutter. In actuality, rent can be deducted as part of your salary’s House Rent Allowance (HRA) component. In case you do not have the HRA provision, the rent amount can be claimed under Section 80 (GG).

Additional Reading: Tax-Saving Investments To Grow Your Wealth

HRA includes the least of the following:

  • Actual HRA received
  • 50% of your salary (assuming you live in a metro city)
  • Excess of annual rent paid above 10% of your annual income

Myth 4: The Total Sum of All My Home Loan EMIs Is Tax Deductible

If you believe the above statement, you may be losing a lot of money on tax. Remember, for any Home Loan, it’s only the principal repayment amount that’s eligible for tax deductions up to the amount of Rs. 1,50,000 as per Section 80C.

Myth 5: I Can’t Afford To Make Investments Right Now

Now, while this can hold good for a fresher who has just started his or her career, it doesn’t really hold good for the rest of the earning population. A common misconception that a lot of us have in our minds is that investments are expensive and only those who have surplus cash can even consider it.

This is clearly not true, as there are various investment avenues that do not necessarily burn a hole in your pocket. If you’re on the lookout for pocket-friendly investments, consider Mutual Funds, Term Life Insurance, Health Insurance, ULIPs and similar options. Just be sure to understand how much of a tax benefit you’re likely to get from each option before you zero in on one.

Well, there you go folks! As with anything else, myths and misconceptions have the ability to cloud our judgement and leave us confused about reality. The truth is, myths will continue to exist – we simply need to rise above them by educating ourselves and seeking out the right information.

Once you understand how investments help you create a financial roadmap for the future and help you save big on taxes, you’ll actually get a kick out of making smart investments.

Additional Reading: 5 Tax-Saving Investment Options That You’ll Love

Eager to get started on your investments? Consider investing in something as safe and accessible as a Mutual Fund and enjoy tax-free dividends and much more.

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