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It can feel like you are giving away a lot of money each month in taxes. While there are many benefits resulting from taxpayer money, it is also important to know how much you are really required to pay. There are many legal tax breaks out there, designed to alleviate your tax burden, but also help you to manage your money better. Here are some of the best ways to save tax in India.
You can reduce the amount of taxes that you pay by making particular deductions. Typically, these are deducted based on the sections outlined in the Income Tax Act. It’s important to know what it is you can deduct and how to best have your salary structured so that these apply.
Your salary is normally structured into basic income and HRA or House Rent Allowance. Depending on how much you pay for rent, you should be able to deduct a large portion of this from your tax payments. In most cases, you’ll need to show your employer the receipts from rent payment and restructure your salary accordingly. If you do not pay rent, but own your house instead, then you do not need HRA in your salary structure.
A great way to give back to the community and save some money on tax payments is to make charitable donations. Under section 80G of the ITA, you can declare donations to charity as a tax deduction. For cash donations, there is a limit of 2,000Rs.
Whether you are paying for an education for yourself or your children, you can declare this as a deduction on your income taxes.
Other than charity, there are a few other ways that you can donate and deduct taxes. One option is to donate for scientific research and rural development. Another alternative is to donate to political parties, however, make sure that it is within the conditions outlined in the Income Tax Act.
Read our article:Best Tax Saving Options Beyond Section 80C
If you have taken out credit to pay for certain goods, you can often relief your tax burden by declaring both payments and interest rates.
When it comes to home loans, you can claim the exemption on the repayment of the principle, as well as the interest that you have paid on your home loan in the given fiscal year.
If you took a loan to pay for your education or that of your spouse and children, then you can get a tax exemption on the interest rate payments. Note that you do not get tax exemption on repaying the principal amount that you borrowed.
One of the strategies the government employs to encourage financial planning is to provide tax-free savings opportunities. This is a great way to start saving, while also reducing the amount of taxes that you pay.
There is a variety of options in the Income Tax Act on how you can set aside pension funds while saving money on your taxes. For example, you can make contributions to the National Pension Scheme tax-free up to a specific amount. Normally, you can deduct up to 10% of your total income.
If you don’t want to invest in pension funds, you can still save tax-free. Some popular options include PPF Accounts, equity mutual funds, 5-year fixed deposits, and life insurance policies.
In addition to investing and deductions, you can also use some of your expenses for tax exemptions. There are many essentials that we pay for that are required as part of our work or as a basic necessity. These are the principal expenses that you can deduct from your tax burden.
If you purchase private medical insurance for yourself, your spouse or your children, you can deduct part of those expenses from your taxes. In addition to this, you can also declare certain medical treatments for yourself and your dependents. Moreover, there is a number of critical illnesses, expenses for which are allowed as a tax exemption.
Since you likely need to commute to your work, possibly use a car for some work-related errands and need to make phone calls or use your cellphone data, these are all eligible for deductions on your income tax. The Conveyance Allowance permits to deduct travel-related expenses from your taxes. Alternatively, you can deduct some of your car expenses. In addition, internet or phone expenses may also be eligible.
As you can see, there are plenty of ways to save on taxes in India. However, many people are unaware of the legislation and do not talk to their employers to make sure that all deductions are included in their payment structure. To prevent this from happening to you, take a read through the Income Tax Act and the different allowances and provisions that it has. This way, you can save some money on taxes and invest it in yourself and your family instead.
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