Deepshikha | May 12, 2022 |
7 Most Effective Ways to Save Tax
The Indian Income Tax Act permits all classes of taxpayers to claim specific deductions to avoid tax while filing an income tax return (i.e. Salaried Individuals, Professionals, businessmen etc). These tax deductions are only accessible if the person has done good tax preparation throughout the year.
If an individual has done adequate tax planning to save money, such deductions will be deducted from gross total income, and income tax will be charged on the remaining income according to the current income tax slabs.
The government enables certain deductions if the money saved is invested in the instruments mentioned in Section 80C, Section 80CCC, and Section 80CCD. This encourages people to save and directs their savings into the correct resources.
The cumulative maximum deduction under these three categories is Rs. 1,50,000. You can save tax by investing under any of these sections alone or in combination if you’ve done adequate tax planning throughout the year, but the total deduction permitted is restricted to Rs. 1,50,000.
The government has designated several instruments via which tax planning can be accomplished, and these investments can be claimed as a tax deduction. The most common instruments for investing to save money on taxes are:
All of the tax-saving options listed below are in addition to the Rs. 1,50,000 deduction granted under Sections 80C, 80CCC, and 80CCD, as described above.
An additional deduction of Rs. 50,000 has been imposed under Section 80CCD for investments in the National Pension Scheme (NPS). This extra deduction was enacted by the Finance Act 2015 (Budget 2015) and is effective for the 2015-16 fiscal year.
The Income Tax Act also allows for tax deductions for expenses incurred by the taxpayer to ensure his or his relatives’ health. Different amounts of deductions are allowed under each of these sections which help in tax savings depending on the type of Insurance Policy which is as follows:
If you have a home loan, you can claim a deduction for repayment of the principal amount under section 80C.
In addition, under section 24, you can deduct interest paid on a home loan. In some circumstances, the highest deduction allowed is Rs. 2,00,000, while in others, there is no limit to the amount of interest paid on a home loan.
Tax planning to save money on taxes by taking out a home loan is strongly recommended because the deduction for home loan repayment can be claimed under three distinct sections, resulting in significant tax savings for the taxpayer.
If a taxpayer takes out an education loan for himself, his spouse, children, or a student for whom he is the legal guardian, he can deduct it under Section 80E and save money on taxes.
This deduction is only available for the repayment of interest on an education loan, not for the repayment of the principle. The amount of interest on an education loan that can be deducted under the section has no upper limit. Individual taxpayers, not HUFs, are eligible for the Section 80E deduction.
A taxpayer with an annual income of less than Rs. 12 lakhs is eligible for an extra deduction under Section 80CCG if they invest in shares of designated firms or mutual funds. The Rajiv Gandhi Equity Savings Scheme is the name of this deduction.
This is a convoluted scheme, and the deduction is only accessible to first-time investors. Those who have previously invested in stocks or mutual funds are not qualified to use this deduction for tax planning purposes.
If a taxpayer has a Long Term Capital Gain from the sale of a Long Term Capital Asset, he can claim an exemption from paying the Capital Gain Tax if he invests the gain in specific instruments. If a taxpayer holds an asset for more than two years, it is termed a Long Term Capital Asset.
This exemption is seen to be highly useful when tax planning to avoid a taxpayer’s income tax.
If a taxpayer makes a charitable, social, or philanthropic donation, or contributes to the National Relief Fund, the donation can be deducted under Section 80G of the Income Tax Act.
The Finance Ministry has pre-specified the organisations to which taxpayers can make donations, and the amount of deduction allowed is determined by the purpose of the donation.
In some circumstances, you can claim 100% of your donation as a deduction, while in others, you can only claim 50% of your donation as a deduction to save money on taxes.
It is not possible to deduct in-kind donations. Only deductions paid in cash or by check are permitted.
Only Rs. 10,000 can be claimed as a deduction for cash transactions. Taxpayers who want to claim deductions of more than Rs 10,000 must make their donations through cheque.
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