Why you need professional help on your finances & tax filing

With the start of the new financial year, there are many queries on how taxes can be saved and what investments to choose to maximise returns. The soaring equity market is making investors overzealous in their endeavor to make quick returns in the shortest period. What investors need to do is to take a step back and review their finances to check if they are following the desired asset allocation, taking decisions based on financial goals and are following tax compliances correctly. 

But to do all of this, investors would have to completely conversant with all aspects of the math and the rulebook. Else they need to engage an advisor to handhold them through the process. Unfortunately, individuals do not like to pay for financial/tax advice and often want this advice at low, unsustainable costs. They do not realise that by saving a few thousands, they are at a bigger risk of making losses due to wrong investments or incorrect tax filing. 

In financial wellness sessions, the common questions on tax show how woefully unprepared and unaware individuals are on correct disclosures for tax filing.  People ask if they need to pay tax on sale of equities, if they can file ITR1 in case of foreign stocks, can HRA be set off against rent, how futures and options (F&O) income is to be shown, does tax have to be paid on fixed deposits since TDS is deducted.  Capital gains, foreign stocks, F&O income/losses, HRA, taxability of agricultural land are some major areas where people could be making mistakes in the right declaration or computation. 

The queries show that people have a very low understanding of tax laws and are filing ITR themselves, with their limited knowledge, thus, ending up under declaring income and  paying less taxes than needed. Many individuals are not even aware of advance tax rules and the importance of matching data with the annual income statement. 

Not disclosing information can have big consequences and cost of dealing with tax notices and the penalties incurred will be at least 3-5 times of the cost of having a chartered accountant (CA) file taxes.  The cost of filing ITR2 with a CA is between Rs 10,000 to Rs 30,000,  on an average and can go higher, based on the complexity of the ITR. The advantage the individual has is getting the right advice and guidance and reducing the chances of getting notices. 

Similarly, a financial planner’s role is not only limited to suggesting investments, but creating a plan based on financial goals and guiding the investor through ups and downs in markets and in financial life. The financial advisor can provide unbiased views on financial decisions of the investor. 

Going by purchase data in equities, it is evident that investors chose investments based on recent performance and do not invest based on financial goals. Despite data from the regulator which shows 90% of F&O traders lose money, people continue to flock to groups promising high returns in a few days through F&O trading.

As the new financial year gets underway, investors should focus first on building a mindset to work with professionals and second on a structured plan for their finances and last but not least, on ensuring they are disclosing and filing tax information precisely.