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Paying income tax becomes challenging for most people. It could be due to multiple reasons. However, if you want to save on taxes and save yourself from unnecessary financial stress, then it is critical that you check out all instruments for tax saving. Proper Tax planning is the key to save on taxes. In this article, we will guide you on how you can save on income tax through proper tax planning in India.
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It is a logical analysis of a financial position from a tax perspective. It allows a taxpayer to make the best use of tax exemptions, deductions, and benefits to minimize his tax liability every year.
Individuals, businesses, and organizations do proper planning of taxes in order to assess their financial profile. By this, they save on the taxes paid on their annual income and profits.
With proper tax planning in India, both first time tax payers and veteran tax payers can be benefitted. It allows to save an appropriate tax amount which is paid to the government to promote economic activities, and personal savings are also managed.
Every citizen should look to carry out proper planning of income tax. It will help you get benefits that you can avail with tax saving schemes in India. It is done by using the right mix of investments to minimize the tax liabilities.
The different methods of tax planning are discussed below:
It means planning is done closer to the financial year and selecting the best investment options to save tax. However, on the flip side, you may end up taking hasty decisions to file ITR at the last minute.
As you would have heard, it is said that “well begun is half the job done.” Therefore when you start planning your tax saving investment at the start of the financial year, it is called the Long term planning. A well chalked out plan helps in the long run.
This means specifically planning the taxes in order to avail benefits by taking right investment decisions through correct selection of the investment, replacing the assets, business expansion programme, etc.
This means tax saving investments with a view to avail tax concessions, deductions, and other exemptions permitted under law.
Here are some tips that can assist you in saving tax on your income:
In case you have a loan like an education loan, car loan, personal loan or a home loan, then saving tax becomes easy. The government permits tax benefits for individuals who are repaying loans. There are some investments that you may consider under Section 80C- Life insurance premium paid towards self, or spouse or child, contribution in PF schemes, subscription to units of mutual fund equity linked saving scheme prescribed and notified by the Central Government. This can prove to be a much better tax saving option if the planning of tax done by payment of loan is executed wisely.
As per section 80D of the Income tax Act, the premium paid on health insurance policies is allowed as deduction from total income. Deduction of up to 15000 rupees is permitted for insurance of self, spouse and dependent children. This can also prove to be a great option to save tax.
Another way of saving tax on your income is by donating. As per section 80G of the Income Tax Act, an individual can claim deductions up to a limit for contributions made to the charitable organizations or to Non-Governmental Organizations. This will not only enable you to save tax but also bring some virtue.
You can also invest in the Equity mutual funds. Investing in Equity mutual funds is a good way to make your profits 100% non-taxable. However, you are advised not to sell your equity shares before the completion of one year period as anything less than 12 months can incur tax on profits.
You may claim house rent allowance to save tax on house rent, but it is worth mentioning that it is only applicable if you stay in a rented accommodation.
You may also use the receipts of your medical bills in order to use them for tax saving at the end of the year. A specified amount is non-taxable on medical expenses for you and your family.
You can also avail tax benefits from your company for conveyance. It will help you save tax on conveyance allowance. Moreover, you don’t require submitting any proof for the same.
If you need a guide on how to save taxes at the last minute, then follow this-
Calculate how much you need to invest. Consider various deductions for this that you are eligible for. Once you know this, you can invest to plug the gap.
If you rush through, you may make wrong investments. Therefore analyze tax saving investment products on parameters like liquidity, lock-in, expected return, capital risk and taxation.
Last minute saving is expected to put a strain on your finances therefore make an investment budget for few months. Consider the expenses to know how much can you spare to invest. If you can spare an amount, decide how you want to use it and where you want to invest.
Proper Tax planning can go a long way in helping you save on income tax. You can take the assistance of a financial professional who can guide you on how to invest and where to invest as tax saving investments should be in line with your financial goals.
Read our article: Get Clarity on the Difference between Tax Planning and Tax Avoidance
Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.
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