HOW TO SAVE TAX ON SALARY
If you believe that you’ve paid the majority of your income in taxes, then it’s most likely that you did not plan your taxes correctly. There are many legal avenues that you can reduce taxes. Income Tax Act of India permits citizens to avoid taxes by deducting. Individuals can claim deductions when filing their tax returns.
Here are some helpful tips to help you save tax dollars:
Deductions are permitted under Section 80C. Section 80CCC and Section 80CCD.
Citizens of India are able to save taxes under the three sections. If individuals have invested their funds in the types of instruments described within Section 80C and Section 80CCC and Section 80CCD, they are able to take advantage of deductions for certain items. The most popular instruments that investors invest in include PPF Accounts pension plans, Life Insurance Policy, NSC (National Savings Certificate ), 5 Year Fixed Deposit, etc. The maximum deduction that people can claim under any one section, or the three sections is Rs.1,50,000.
Individuals who invest in National Pension Scheme can claim an additional deduction of Rs.50,000 under Section 80CCD.
Taxpayers can avoid tax on the amount that they paid for medical treatments. If patients pay for the medical bills, their medical expenses become tax-free. Employers also provide medical allowance to each of employees.
The maximum amount employees are able to claim through medical bills during the calendar year amounts to Rs.15,000. It is a requirement of the Income Tax Act allows deductions under Section 80D, Section 80DD and Section 80DDB for money that was spent by taxpayers to insure their health as well as their relatives’ health.
The amount of deduction can vary in each of the sections and depends on the kind of insurance policy that the taxpayer purchased.
The majority of individuals are encouraged to cut back on tax by taking out a home loan since the deductions are available in three different sections. This could result in significant savings. If a person takes out the home loan they are able by Section 80C in the Income Tax Act to claim deductions for the repayment of the principal amount. Section 24 permits people to claim deductions for the interest they’ve paid on home loans.
The maximum deduction amount of Rs.2,00,000 is permitted in certain situations, however there are instances where there is no maximum amount of deductions that are allowed for the amount used in the interest on the home loan.
Tax-payers can cut their tax bill by taking out an education loan to fund higher education for themselves , their spouse or children or spouse, etc. The section 80E in the Income Tax Act allows people to claim deductions on the amount they’ve paid for the loan’s interest. There is no maximum amount for the number of deductions that they are allowed to claim. Section 80E allows only taxpayers who are individuals to take deductions.
Taxpayers can reduce their tax burden by investing their funds through stocks and mutual funds. According to Section 80CCG of Income Tax Act, citizens who earn less than Rs.12 Lakhs annually are allowed an additional deduction when they invest their money in shares of specific companies and specific mutual funds. The deductions are granted under the Rajiv Gandhi Equity Savings Scheme and is only available to investors who are first-time investors.
Long Time Term Capital Gains
Taxpayers may save money on tax by utilizing their long-term capital gains, provided that they are able to receive the amount of gain by selling any long-term capital asset and then investing it into specific instruments. Long-term capital assets could be any item that the taxpayer owned for a period of three years.
To encourage people for investing in equity share and mutual funds to encourage people to invest in mutual funds and equity shares, it is the Indian Government has eliminated taxes on long-term gains made by the selling or exchange of equity securities. Tax exemption is only granted when the shares are held for more than one year.
Donating money to reasons of charity or social service or making donations for the National Relief Fund, citizens of India are able to save money on tax by deducting the amount they spend on donations. They are able to claim these tax deductions in accordance with Section 80G under the Income Tax Act. The charity that taxpayers are able to donate to is determined in the Ministry of Finance and if deductions are allowed or denied, that will depend on the reason the money is given. Taxpayers cannot claim deductions for donations that were made in the form of a gift. Taxpayers are entitled to deductions of up to Rs.10,000 for donations made with cash and for any amount over Rs.10,000 it is required to make a donation by cheque.
House Rent Allowance
In India employees can avail House Rent Allowance (HRA) that is taken out of their earnings. HRA can help people reduce taxes since individuals are able to benefit from it through the deductions segment. If the total rental of people is greater than Rs.1 Lakh in a year the tenant must show proof of their rent, such as a House Owner’s PAN Card and Lease Agreement and so on. In addition, individuals can’t claim the total HRA amount offered from their employers, but only the one that is the lowest:
Actual HRA offered to the employee.
50% of the basic salary plus 50% of basic salary plus (if the employee is located in Mumbai, Delhi, Chennai or Kolkata). 40% of the basic pay plus D.A. (if the employee lives in an other city).
Actual House rent less 10 percent of base salary, plus DA.
LTA (Leave the Allowance for Travel)
If taxpayers are provided with LTA via their workplace, they can claim tax-free LTA. It is possible to claim it two times within a span of four years. In order to claim it you must travel inside India during their time of leave.
These are just a few of the common ways that people can cut down on tax bill. If tax payers manage their earnings, investments and expenses and tax affairs properly they could be able to save lots of dollars.
It is recommended not to take illegal steps to avoid taxes. For example , if individuals attempt in order to avoid paying tax and saving money, that amount could be viewed as unaccounted or black money. If caught, it could cause a number of trouble.
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