Five ways you can save tax
Be it a first-time taxpayer or a seasoned one, tax planning is essential for all. Efficiently planning taxes helps one save a lot of money. Despite this, the Indian tax laws seem so complicated that people are scared of dealing with it. However, tax saving is not as difficult as it looks. The Indian income tax regulations allow for certain deductions or exemptions for all classes of taxpayers (i.e. salaried individuals, professionals, and businessman, etc.). We just need to put in some efforts to understand the various ways through which we can claim such deductions or exemptions.
Here are five simple ways using which you can reduce your taxes:
- Profits earned from the selling of shares or mutual funds can be totally tax-free. The trick is to hold the equity, whether it is shares or mutual funds, for more than one year. For e.g., if someone has invested Rs1 lakh in some stock, and its value rises to Rs1.2 lakh in 11 months, he/she will have to pay a tax on realizing the profit of Rs20,000. However, holding it for another month means there would not be any need to pay tax on the profits. However, the Finance Bill 2018 now restricts this exemption to taxpayers whose total profits from such sales do not exceed Rs1 lakh in a given year.
- Some personal expenses are additionally eligible to reduce your taxable income. These expenses are deducted from your gross salary. Your employer can provide you with leaves, or travel remittance, or meal coupons as part of your salary. There is also a component called HRA (House Rent Allowance). You can claim a deduction for the same if you live in a rented house. Whenever you negotiate your CTC with your employer, make sure that you structure your salary in order to include all or most of these components.
- There are various other tax-saving investments as well. Schemes like Employees’ Provident Fund (EPF), Public Provident Fund (PPF), National Pension Scheme (NPS), Sukanya Samriddhi Scheme, and so on, are a few of the investments through which one can save tax.
- You can always invest in the equity-linked saving schemes (ELSS). It is a systematic investment in mutual funds with a lock-in period of three years. ELSS invests in the share market and has a potential of providing the highest return. Using this, one can claim deductions up to Rs1.5 lakh under section 80C. It gives the dual advantage of tax exemption as well as capital appreciation.
- Employers deduct TDS from your salary. Tax Deducted at Source (TDS) varies according to the projected tax liability for the particular financial year. If the planned tax savings, investments, and expenses for the year are not declared properly, the expected tax will naturally be higher. Moreover, to compensate this, the employer deducts a TDS accordingly every month. However, it might happen that it would already be too late by the time you declare your investments and your employer already deducts more TDS than required. Although, one can always claim a tax refund by filing income tax returns, why pay extra and lose out on the returns those extra funds could have provided in the meantime?
There are many ways to save taxes. You just need to put in some efforts to understand how to do it. Ensure that you never break any laws in the process. While being tax-efficient is smart, tax evasion is entirely illegal and punishable.
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