When you become eligible for paying tax then during this initial time period you deal with lots of confusion, worries, and a question in your mind – Why should I pay tax? Even the idea of paying a large part of your income as tax sounds horrific.
However, you are not alone, it happens with each and every Beginner. However, taxes are vital to the development of the nation and cannot be avoided, that’s why most people even with all the difficulties file taxes every year.
The government also knows about all the difficulties very well and that’s why there are some provisions made by the government to ease the load on the taxpayers. Taxpayers can take full advantage of deductions, exemptions, and rebates allowed by the Income Tax Act to save taxes.
Financial measures taken to reduce taxes are considered tax planning, and it implicates arranging your financial activities in a specific way that will help in tax saving.
Here are some simple tips to save taxes effectively:-
Use Section 80C
In order to encourage the citizens of the country to adopt the habit of saving more tax, the central government authorizes certain deductions on the amount invested in some distinct instruments under section 80C. Some of the popular tax-saving schemes are:
● Pension plans
● PPF accounts
● Equity mutual funds
● 5-year tax-saving deposits
● Life insurance policies or term plans
By investing wisely in these tax-saving schemes, you can achieve two goals, fulfilling financial goals and saving tax together. In this way, you can significantly reduce your taxable income and save more of your income.
Components in Salary structure
Most companies allow the restructuring of certain salary components to lower your tax liability. If you have a good relationship with your human resources (HR) department, talk to them about adding some allowances to your salary.
You can avail of allowances like medical allowance, transport allowance, education allowance, and telephone expenses as part of your salary as they are not taxable. Additionally, go for food coupons instead of lunch allowance, as they are exempt from tax up to Rs.60,000 per annum.
Add House Rent Allowance
Employees normally get House Rent Allowance (HRA) in their income. If you do not have this component included in your salary, you can ask HRs to add it. If you live in a rented house and receive rent allowance from the employer, then you, as an employee, can claim exemption on HRA as per the Income Tax Act.
Charitable Donation
Charitable contributions under section 80G are deductible up to 10% of your income. However, you should ensure that you get a receipt from the organization and a copy of their income tax exemption certificate rather than donating with no acknowledgment. If you can present donation receipts, then you are eligible for a tax deduction by donating to a noble cause.
That’s it, these are some important but simple tips for beginners to save more tax. You can go through them all and decide according to your condition and available options.
Authored by – Amit Gupta, MD & Founder, SAG Infotech
(Economy India)
