Effective Ways To Save Tax |
Posted: March 3, 2017 |
When filing your income tax returns, there are certain ways through which you can claim deductions to save tax. These methods apply to all kinds of taxpayers, be it businessmen, professionals, or salaried individuals. However, thorough tax planning has to be done over the course of the year in order to save tax. By ensuring effective tax planning, deductions will be reduced from your gross total income, and the balance income will be subject to income tax based on the current income tax slabs.
Following are the ways through which you can save a significant amount of money on tax:
The government of India has allowed certain deductions if the money saved is invested in PPF accounts, equity oriented mutual funds, five-year tax saving FDs, pension plans, life insurance, EPF contributions and National Savings Certificates. These investment instruments are eligible for deductions under Section 80C, 80CCC, and 80CCD. However, individuals can claim deductions under these three sections only to the extent of Rs.1.5 lakhs. By carrying out thorough tax planning over the course of the year, deductions can be claimed by investing in the instruments under these sections to save tax.
Individuals can save tax under Sections 80D, 80DD, and 80DDB if the taxpayer has incurred expenses on insuring his or her own health or their relative’s health. Each section allows for different amount of deductions, which can aid in tax saving based on the kind of insurance policy purchased. For instance, medical insurance premium can be claimed under Section 80D if the expenditure has been incurred on the taxpayer or his/her children or spouse. Expenditure towards the medical treatment of handicapped dependents can be claimed as deduction under Section 80DD, and expenses for the treatment of specified diseases can be claimed under Section 80DDB.
Individuals who avail education loans to pursue higher education for themselves or their children or their spouse or a student whom they represent as legal guardians can claim deductions under Section 80E of the Income Tax Act. However, deductions can only be claimed for interest repayments, and not for repayment of the principal amount, but individuals have no maximum limit when it comes to claiming deductions for repaying the interest. Deductions under this sections can only be claimed by individual taxpayers and not by Hindu Undivided Families.
Individuals who avail home loans can claim deductions when it comes to repaying the principal amount borrowed under Section 80C. Furthermore, deductions can also be claimed on the interest paid towards the home loan under Section 24. While Rs.2 lakhs is the maximum deduction that can be claimed in some cases, there is no cap on other cases. By ensuring effective tax planning while availing a home loan, taxpayers can save a significant amount of money.
Individuals who donate money to charity, philanthropic or social purposes can claim the amount donated as deductions under Section 80G of the Income Tax Act. Even contributions made towards the National Relief Fund can be claimed as deductions under this section. A list of organisations to which individuals can make donations and claim deductions has been made available by the Finance Ministry, but the deductions applicable will be based on the purpose of donation. While 100% of the donation is considered for deductions in some cases, other cases allow only 50% of the donation amount for deduction. Donations made in kind cannot be claimed as deductions, and only those made via cash or cheque will be considered for deductions. The maximum amount that can be claimed as deduction for donations made via cash is Rs.10,000. Individuals who wish to claim deductions for amounts in excess of Rs.10,000 will have to make donations via cheque.
Individuals who earn a yearly income lower than Rs.12 lakhs can claim an extra deduction under Section 80CCG by investing in certain mutual funds and in shares of certain companies. The scheme itself is quite complicated and deductions can be claimed only by first-time investors. Individuals who had previously invested in mutual funds or shares will not be allowed to claim deductions under this section.
In case a taxpayer is accruing Long Term Capital Gain by selling a Long Term Capital Asset, exemption from the payment of the Capital Gains Tax can be availed in case the amount of gain is invested in certain instruments. Assets that have been held by the individual for a period of three years or more are regarded as Long Term Capital Asset.
There are a number of ways through which you can save tax, and the aforementioned options will certainly help claim deductions, and, as a result, increase savings.
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