Tips on How To Save Income
Tax
Under
the Income Tax Act there are no of deductions are available by claiming those
deduction you can reduce you income tax liability. But for this you must have knowledge
of all the deductions which you can claim and accordingly you have done proper
tax planning at the beginning of the financial year.
In this post I am going to give tips on how to save income tax. Following
are the some ways by which you can save income tax.
1. Save
Tax through tax free allowance
Following are the tax free allowance to
the extent actually incurred by you. But for this you have to give the proof
that you have actually incurred these expenses.
Tax
Free Allowances
·
Conveyance
·
Driver
·
Newspaper, Books and Magazine
·
Medical Treatment
·
Uniform
·
Telephone and Mobile
·
Personality Development
·
Office Entertainment
2. Tax
saving through Home loans:
You can claim deduction for both
interest and principal payments towards a home loan. The principal amount paid
as part of equated monthly instalments (EMIs) of a self-occupied house is
eligible for deduction up to Rs 1.5 lakh under Section 80C. The construction
should be done within three years from the end of the financial year in which
the loan is taken. The deduction is reversed if you sell the property within
five years of purchase.
The interest component can be used to claim up to Rs 2.5 lakh deduction under Section 24B if the house is ready and in your possession. If you have rented out the house, you can claim the entire interest as deduction from the rental income.
3.
Save Tax through HRA
You can deduct the
lowest of these from gross income as HRA deduction.
·
Actual HRA given by
the employer
· 50% of the basic
salary plus DA if the employee is situated in Delhi, Mumbai, Kolkata and
Chennai. Else, 40% of the basic salary plus DA.
·
Actual house rent paid
by you, minus 10% of basic salary+DA.
To get the HRA deduction
you have to give rent receipts to your employer. If your total rent of a
financial year exceeds 1 lakh then you need to give copies of registered lease
agreement and copy of the landlord’s PAN card.
You can also give the rent to
your parents. But you have to
complete all the formalities of lease as stated above.
4. Tax
exempted investments u/s 80c
Certain investments give your tax rebate. These investments come
under section 80C of deductions. The amount invested is
deducted from your taxable income. Many of such investments come under EEE
category. It means you need not to give tax at the time of investment,
earning and redemption. However, There is a maximum limit of 1.5 lacs for 80C
deductions.
List
of Investments Which Saves Tax
ULIPS:
Unit-linked insurance plans, or Ulips, can be used to get
insurance as well as equity exposure. Ulip investments are eligible for Rs 1
lakh deduction under Section 80C. The maturity proceeds are tax-free.
EPF
Contribution
Employee Provident Fund is a retirement
saving instrument. Contribution to the EPF is mandatory for the employees of
organised sector if their bic salary is less than Rs 15000/month.
he employer also contributes equal
amount in the EPF account of employee. The contribution to EPF by employer is
tax exempt, while contribution by the employee is tax deductible under
section 80C.
Deposit in PPF account
PPF account is also a long term saving
scheme by the government. Anyone can open the PPF account in SBI, post office
or other banks. The PPF account gives tax deduction under section 80C.
Investments in tax saving mutual funds
i. e. Equity Linked Saving Scheme (ELSS)
Equity linked saving scheme are
diversified mutual fund scheme which have lock-in period of 3 years. The ELSS
invests in share market. It has potential of highest return.
Sukanya
Samriddhi Account
This is a government saving scheme for
the girl child. It gives highest return among all the small saving schemes. The
investment is locked till your girl child turns 18. The investment and maturity
amount is tax-free.
Tax Saving
Fixed Deposit
Tax saving Fixed deposit is like any
other fixed deposit of bank. The only difference is the lock in period of 5
years. The interest earning of tax saving FD is subject to tax.
National
Saving Certificate (NSC)
It is post office small saving scheme.
The national saving certificate is issued for 5 years. The interest rate of
this scheme is 8.5%. the NSC gives tax benefit under section 80C. The interest
is subject to tax.
Senior
Citizen Saving Scheme
This is also an small saving scheme by
the government. It is designed for senior citizens. This scheme gives regular
income. The interest rate of senior citizen saving scheme is better than NSC or
PPF. The retired defence personnel can subscribe this scheme at any age.
There are some expenses which also give a deduction for tax saving.
5. Expenses Eligible For Tax Saving
Under the limit of 1.5 lakh
deduction there are some expenses as well.
·
Tuition fees for self and children
·
Life Insurance Premium.
·
Home loan principal payment- Home loan EMI has two-part, principal and interest. Principal part gives
tax saving benefit under section 80C. Know more about the tax benefit of home loan
These expenses and above mentioned
investment in aggregate should not exceed 1.5 lakh limit.
6.
Leave Travel Allowances and Medical Expense
Some personal expenses are also eligible
for exemptions. These Expenses are deducted from your gross salary. Your
employer may give you part of your salary as medical allowance. Check with the
HR department.
If you produce an actual bill of medical
expenses, this allowance becomes tax-free. So, Start collecting medical bills.
However, it is limited to Rs 15,000 in a financial year. You can give receipts
of medical expense of your dependents as well.
Your employer can give you leave travel
allowance as well. You are entitled to tax-free leave travel allowance.
·
It is also limited to two times in a block of 4 years.
·
The travel should occur while you are on the leave.
·
It should be within India.
·
Travel should be from the shortest route.
·
You can claim the maximum for AC-I of the train journey and
economy class of air travel.
7.
Medical Insurance Deduction
Medical Insurance expense gives
you the deduction, over and above the 1.5 lakh limit. You can save tax for the health insurance premium u/s 80D of your family and dependent parents.
Also, health checkup can also give you tax saving. You can deduce these
expenses from your total taxable income.
·
Up to Rs 25,000 for the health insurance of self and family. You
can also include health checkups of up to Rs 5,000 within this limit.
·
Up to Rs 25,000 for the health insurance of parents. If they are
above 60 years, This limit goes up to 30,000.
8. Set
Off Capital Gain
Salaried people need to give capital
gains tax on their investments. Shares attract only short-term capital gains
tax while property and gold attract both short and long term capital gains
taxes. However, you can set off your capital gain
from an investment with the capital loss of another investment. Note, you
can set off short-term capital gain only with short-term capital loss and long term capital gain with long term capital loss only.
You can also carry forward your
capital loss up to 8 years. This will give a fairly good chance of tax saving
on account of capital loss. Suppose you incur trading loss in shares. This loss
can be carried forward up to seven years. In subsequent years your trading
profit can be set off with this big loss.
9. Charity
You can save tax on your donations.
However, not every charity gives you 100% tax saving. Donations to the PM
relief fund, some notified NGO and political parties can give you the 100% tax
benefit. You can also donate to scientific institutions and religious body and
claim tax rebate.
10. Diseases
Expenditure on treatment of taxpayer or
his/her dependants for certain diseases can be claimed as deduction up to Rs
40,000 under Section 80DDB. From 2012-13, expenses on treatment of senior
citizens above 60 will be deductible up to Rs 60,000. This is for treatment of
specified diseases. You cannot claim this deduction if your employer or an
insurance company reimburses the expense.
Under Section 80U, individuals suffering from disabilities such as blindness, hearing impairment and mental illness can claim a deduction of Rs 50,000. If the disability is severe, one can claim a deduction of Rs 1 lakh. If a taxpayer has a disabled dependant, a deduction of Rs 50,000 is allowed. If the dependant has a severe disability, the deduction allowed is Rs 1 lakh.
Under Section 80U, individuals suffering from disabilities such as blindness, hearing impairment and mental illness can claim a deduction of Rs 50,000. If the disability is severe, one can claim a deduction of Rs 1 lakh. If a taxpayer has a disabled dependant, a deduction of Rs 50,000 is allowed. If the dependant has a severe disability, the deduction allowed is Rs 1 lakh.
11. Small Interest
From this financial year, you do not
have to worry about paying tax on interest earned on your savings accounts,
provided it does not exceed the standard deduction of Rs 10,000. This deduction
is available under Section 80TTA to individuals and Hindu Undivided Families.
Last but not the least to avoid the hassles
of last minute tax planning, give your employer details of loans and tax saving
investments beforehand, to prevent any excess deduction Check the Form 16
received at the end of each year from your employer thoroughly It is important
to start your tax planning well before 31st March, and to file your returns
before the 31st of July each year
I hope this post will help you to reduce
your income tax liability and save your hard earned money. Give your opinion on
my this post and in case if you have any query, Please feel free to ask. I will
try my best to reply.
You Must Know How Income Tax Budget effect your Life – Union Budget Highlights (2021)
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