As the new financial year begins, we get a lot of questions about how you can save on taxes and what investments to choose to maximize your returns. The soaring stock market has made investors overly eager to make quick profits in a short period of time. What investors need to do is take a step back and review their financial situation to ensure they are following their desired asset allocation, making decisions based on their financial goals, and adhering to tax compliance correctly.
But to do all of this, investors need to fully understand the math and every aspect of the rulebook. Otherwise, you will need to hire an advisor to help you through the process. Unfortunately, individuals do not like to pay for financial/tax advice and often want this advice at an unsustainably low cost. They don't understand that by saving thousands of dollars, you run a greater risk of losing money through the wrong investments or incorrect tax returns.
At Financial Wellness Sessions, tax FAQs reveal how horribly unprepared and ignorant individuals are about accurate disclosures for tax returns. Do I have to pay tax on the sale of shares? Can I declare ITR1 in case of foreign shares? Can HRA be set off against rent? How is futures and options (F&O) income shown? Questions are often asked: Do I need to pay taxes? TDS will be deducted and will be paid on fixed deposit. Capital gains, foreign stocks, F&O profit and loss, HRA, agricultural land tax, etc. are the major areas where people can get the correct returns or calculations wrong.
The question shows that people have very poor understanding of tax laws and file ITR themselves with limited knowledge, thus ending up not declaring their income and paying less tax than they should. . Many people are not even aware of the up-front tax rules or the importance of reconciling their data with their annual income statement.
Not disclosing information can have significant repercussions, making tax notices costly to process and resulting in penalties that are at least three to five times the cost of having a certified public accountant (CA) file your taxes. The cost of filing an ITR2 with the CA is on average between Rs 10,000 and Rs 30,000, but can go higher depending on the complexity of the ITR. The benefits for individuals are better advice and guidance and reduced likelihood of being notified.
Similarly, the role of a financial planner is not limited to recommending investments, creating plans based on financial goals, and guiding investors through the ups and downs of the markets and financial life. A financial advisor can provide an unbiased view of an investor's financial decisions.
Looking at stock purchase data, it's clear that investors are choosing investments based on recent performance and not based on financial goals. Despite regulator data showing that 90% of F&O traders lose money, people continue to flock to groups that promise high profits in days through F&O trading.
As a new financial year begins, investors should first be prepared to work with professionals, secondly develop systematic financial plans, and last but not least, ensure accurate disclosure of tax information. The focus should be on ensuring that the declaration is completed.
(issued April 7, 2024, 23:25 IST)
