People try very hard to save tax every time, but somehow they have to pay exactly as they should. Tax may be a headache for everyone, but it is also essential to strengthen the country in many ways and for the smooth running of the country’s functioning.
Tax payers want to pay the government as little as possible out of their earnings and to achieve this some of them do not hesitate to go down the wrong path. Legally or illegally, they just want to keep full for themselves.
There is one interesting fact people should know before trying to go with anything illegal or anything unnecessary. In many other countries, individuals pay more than half of their earnings in taxes but in return, they also get protection and facilities.
India is among the top 10 countries where citizens pay corporate taxes, but India’s tax to GDP ratio is relatively low compared to other countries. It is because a large part of the Indian population is exempted from taxation. And those who come under the radar also pay a very small amount in taxes.
Thus, it is not advisable to choose illegal ways only to save taxes as there are many ways to save taxes legally. In this article, we are listing 8 ways to save taxes legally, and if you are a taxpayer and want to save more taxes then make sure to go through the complete list and seize all the tax-saving opportunities.
Methods to Save tax legally
There are many ways to save tax, we have listed a few of them here. You can choose one that suits you and also have other benefits. Go through the list and make a good plan if you want to save taxes.
Invest your taxable income in various schemes
There are many tax-saving schemes, and by investing in them, you can claim tax exemption. Under Section 80C deduction of the Income Tax Act (ITA) of India, you can claim a deduction of up to Rs. 1.5 lakh from investments in various schemes listed in the Act.
Here is a list of investment plans that will help you save more tax:
● Senior Citizen Saving Scheme
● Employee Provident Fund (EPF),
● Equity Linked Saving Scheme (ELSS),
● Public Provident Fund (PPF),
● Sukanya Samriddhi Account,
● Tax Saving Fixed Deposit, and
● National Saving Certificate (NSC)
Donation and charity
The government encourages taxpayers to donate and help the poor and needy. Donations to PM relief fund or any notified NGO or political parties can give you a 100% tax deduction as per section 80G of ITA.
Additionally, after a recent amendment in the Act, donations of government funds to the Swachh Bharat Kosh, the Clean Ganga Fund, and the National Fund for the Control of Drug Abuse can also give you a full tax deduction.
Plan for a Home Loan
Repayment of principal, as well as interest payment on a home loan, can save a huge amount of tax for you. You can claim a deduction on repayment of the principal amount under section 80C for an existing home loan. You can also get a deductible amount of up to ₹2 lakh on home loan interest payments. However, to avail of the full benefits, the home loan needs to be huge.
Save taxes on Education Loan
Full tax exemption is available on interest repayment of education loans. While there is no limit on the deductible amount, but unlike a home loan, repayment of the principal amount is not exempted. Consult with someone having experience in investment banking to get the maximum tax-saving benefit from the education loan.
Show your Personal Expenses
Not all personal expenses can help you in saving taxes. Some personal expenses are listed below which will make you eligible for more tax savings.
● Tuition fees for self and children
● Insurance premium for self or spouse or children
● Expenses of treatment of some diseases
● Medical treatment of disabled dependents
For more details consult with an expert or CA. With their knowledge and experience, they can help you in a better way.
Consider Long Term Capital Gains in your tax-saving plan
On selling a long-term asset and reinvesting the gain amount is in specified instruments, you may be exempt from capital gains tax. However, for an asset to be considered a long-term asset, it has to be held by you for more than 3 years. If the long-term gains are from equity shares or mutual funds held by you for at least one year, then these are tax-free too.
Restructure your salary
Various expenses you incur for the job are tax-deductible. However, not all benefits and allowances are available to everyone; They are given to employees as per their rank. Moreover, there is a specified limit for the deduction of tax on these allowances. Talk to your employer to restructure your salary and adjust the tax-saving allowances for you.
● House Rent Allowance
● Medical Treatment
● Personality Development
● Conveyance
● Driver
● Uniform
● Office Entertainment
● Telephone
Invest in holiday travel
If your employer provides a leave Travel Allowance to you then you can claim a tax deduction on it too. But, you need to keep in mind that such claims can be made only twice in four years. Also, the travel must be within India, and the maximum claim they can make needs to be of AC Tier 1 train travel or economy class of air travel.
Now that you know about all the ways that can help you save tax, it is important to consider all these ways and factors while planning for more savings. Understand all the bits and pieces to come up with something that will be beneficial to you and also completely legal.
Authored by
Amit Gupta, MD, SAG Infotech
(Economy India)
