Paying income taxes at the end of every financial year is the most challenging thing to do for many citizens. To overcome this, people blindly invest their money without having much knowledge about things.
There are so many other incentives and allowances given through the Income Tax Act than the popular Section 80C, which significantly reduces your tax liability.
To run a taxable business, you must get registration under GST. After that, you’ll get an Application Reference Number. You can check the GST ARN status online in the official portal to track your registration process.
Here are eight smart ways by which you can save your taxes.
Buying insurance policies will benefit you in a lot of ways but will also help you save taxes.
Health insurance policies became more essential in Indian families because of multiple reasons, such as the declining quality of general people’s health and a remarkable rise in medical cost. These also ensure that any kind of emergency would be covered by the bank itself.
Another benefit everyone who takes an insurance policy gets is that you can claim some money back as a refund from the income tax department as the premium you pay is completely taxable. It doesn’t only help you in times of emergency but also saves your taxes.
In a life insurance policy, one needs to pay premiums every year, which in return is paid back in a large lump-sum amount in case of the demise of the insured person. The premium paid for life insurance policies is liable for tax deduction under section 80C of the Income Tax Act.
Investments are very popular among a lot of people as they directly help us save taxes under Section 80C. But, not many people do it because of low returns or plenty of other risks affiliated to them.
Although there are many options available in the market as tax-saving investments that come under Section 80C of the income tax act, people get confused about which one to choose and which one not to. You can go for an ELSS fund or NPS fund, which gives you the most returns with a lesser lockdown period.
To eradicate the possibilities of risk, try to diversify and invest in multiple funds in small amounts. In this way, you get more benefits in gaining tax-free income, and you also save on taxes.
Deduction on Rent
This option is for any individual who gets house rent allowance or HRA as a portion of their salary itself and is a resident in a rented house. Although this is very niche, it can still benefit some in saving tax.
It differs from city to city. If you live in a metro city, 50% of your income is exempted from tax. If you live in a non-metro city, it’s 40%. The amount you receive from your firm as house rent allowance is then calculated, and it’s subtracted from your annual income. The remaining amount is what will be taxed with a 20 percent slab.
- Donate to Charity
Donations offered to particular organizations in cash are qualified for tax waiver amounting to ₹2,000 under Section 80G of the Income Tax Act. Any donation done to the government or any government approved institution, party or charity are eligible for 100% deduction.
Partial waivers in case of cash donations get granted, while transfers made through cheque or draft enjoy a complete tax waiver. Under Section 80GGA, Any donation given to scientific research or rural development can be claimed back.
The mode of payment can be anything, but if you are donating more than Rs.10,000 in cash, it’s not exempted from tax.
The Indian government has shown interest in an individual’s dream to buy his/her own house. Also, they have made a lot of exemptions on taxes for home loans as it benefits and encourages everyone to invest in houses. If you have a home loan, interest payable on its tax is deductible up to Rs 2 lakh per annum.
There are so many programs that you can access that will substantially reduce your tax costs. There are deductions in interest amounts, a principal payment amount, or some that can be claimed during the construction of the house, etc. The maximum deduction of tax can go up to 1.5 lakhs! So make sure you keep all these points in mind while claiming a house loan.
Interest Income on Savings Accounts
If you hold a savings account, you must probably know the benefits of it. Unlike a current account, this account is specifically for saving your money. You also earn money through interest, which also varies from time to time.
The best part of it is that up to Rs.10,000, you can claim a deduction from income to payable tax. Any money more than Rs.10,000 will only be accounted for payable tax. Also, it’s an important point to notice that it does not apply to senior citizens.
Tax on Bonus
Did you know? The money you get as an incentive, bonus, or gift or cash prize of any kind is completely non-taxable. Only if the gift is cash, and if it’s above Rs.10,000, it’s marked as a taxable income of another source if it was given by your employer.
Also, this cash is taxed at 30%. Even cash prizes from entertainment shows and media are charged with the same amount of money as tax.
Although this was covered under the part of the investment, in India, ELSS or the Equity-linked savings schemes are one of the most popular and the most valuable funds you can invest, at least for now.
The returns in this fund are much higher, sometimes double the investments made. The other benefits it has are very less time as the lock-in period, and you can even invest as low as Rs. 500.
But keep in mind that if you sell your equity in less than 12 months, the income you receive will be taxable. Under Section 80TTA, interests earned under savings accounts up to a maximum of Rs 10,000 can be claimed as a deduction.
All these points will considerably reduce your total taxable income for a specified financial year, as well as aid you in knowing more about the different government-mandated plans.