Do you feel that you are paying too much tax? Have you ever thought of saving tax?
Whether you are a veteran taxpayer or a first timer, tax planning is important for both of you. Planning your taxes properly can help you save a lot of money.
Income Tax laws appear so complex that people are scared to deal with their taxes. Why won’t they be scared? After all, the man with the greatest mind, Einstein himself called taxes the hardest thing to understand. Such people let their employers drain plenty of money as TDS from their salary.
Don’t fall in such category. Honestly, tax saving isn’t as difficult as you think it is. There are so many things that you do unknowingly which can save your tax. All you need to do is to claim the tax benefits. If you put little effort, you can save more tax than you can imagine.
In this article, I’ll talk about some completely practical and legal tax saving schemes. Let’s talk about tax saving expenses first. We incur several regular expenses which make us eligible for tax benefits but we fail to utilise them due to our ignorance.
We often spend a considerable amount of our income to provide best education to our kids. I-T laws provide you opportunity to compensate the expenses you incur on their tuition fees by reducing your taxes. You can claim this deduction u/s 80C of I-T Act.
If you look at your salary carefully you will find that it has a component called HRA. This allowance can be claimed as a tax deduction, if you live in a rented place. Don’ t worry if you don’ t get HRA in your salary as you can still get tax benefit as per the provisions of section 80 GG of I-T Act.
You will be glad to know that the burden of your home loan EMIs can reduce the burden of taxes. You can get the benefit on both principal & interest component of your instalments. You can get a deduction on home loan interest repayment under section 24 of the Income Tax Act and a deduction on the principal amount under section 80C. If you are a new home buyer or paying for your first house, then you can save even greater amount of tax.
Due to rising costs of educational courses, people often go for education loans when it comes to higher education. Just like deduction available on tuition fees, your education loan EMIs also bring tax benefits to you.
[ Read More: Tax Deduction on Education Loan ]
Ideally, the day you start earning money should be the day you start planning your retirement.
One of the best ways to do this is to start investing in pension funds. Fortunately, you can also reduce your taxes when you contribute to certain pension funds.
LTA is another component of your salary which can fetch you tax benefits. LTA concession can be claimed for two journeys in a block of 4 years. Expenses incurred by you & your family on travel for which your employer gives LTA can be claimed as deduction.
These expenses are a regular part of every person’s life. Much to your relief, tax laws let you make some tax gains if you spend any money towards medical insurance & preventive health check-up. You can get deduction up to Rs. 60,000. Just make sure not to pay your premiums in cash.
There is another reason to rejoice when you make donations. You not only boost your karma & achieve inner peace but also earn right to claim another tax exemption. There is an upper limit on cash donations. Such donations are capped at Rs. 2,000.
Other than these expenses, there are several avenues which can help you save taxes voluntarily. If you have surplus money which you want to invest, then why not invest in options which can fetch you dual benefits, i.e. lucrative return as well as tax exemption.
If your employer has opened an EPF account for you, then you are already investing in a very lucrative investment option. The contribution that you make to your EPF or PF account can be claimed as deduction under section 80C. The interest income & maturity amount that you get
as a result is also exempt from tax.
Other than EPF, Public Provident Fund is considered the best way to save tax while making good return on investment. It is a good option if you are looking for long-term investment opportunity. Just like PF, you can get tax deduction on your contributions while resulting interest income & maturity amount stays exempt from tax.
This is arguably one of the best tax saving investment options available today. It offer higher rate of return on investment when compared to PF & PPF. However, this scheme is only available to parents or guardians of a girl child.
It is a saving scheme offered by postal department. It is considered a highly secure option having
almost zero risk. Your contribution to this scheme makes you eligible for section 80 C deduction.
Five year fixed deposits can be opened with any branch of Indian Post Office. These deposit accounts work like any other fixed deposit account except that they have a lock-in period of five years and offer the double benefit of return on investment and tax deduction.
There are several other ways in which you can further reduce your tax liability like setting off your capital gains and asking your employer to restructure your salary.
When you make capital gains on your investments, you attract taxes. However, if you make a loss then Income Tax Department allows you to carry forward your capital loss up to 8 years. Note that you can set off short-term capital gain only with short-term capital loss and long-term capital gain only with long-term capital loss.
When switching jobs we only focus on higher CTC. However, a higher remuneration will also result in higher taxes. Therefore, it is equally important to ask your prospective employer to structure your salary in such a way that your take home pay is maximised & to outgo is minimised.
Start using these tax saving methods today and optimise your tax life. If you feel there are even better ways for salaried individuals to pay taxes then let us know in the comments below.