Overview of income tax: How to Save Income Tax
Often taxpayers look out for options how to save income tax. Nobody prefers lose chances to save income tax, yet people prefer different routes to save tax according to their own convenience. Sometimes they just stick to their tradition methods while many look out for support from financial advisers for better products. This article is focused on helping people understand some of the essential aspects related to tax payment and means to save income tax whenever and whichever the ways possible.
Even Though taxes are tough to avoid, there are several ways to save income tax. To get clear-cut perceptions into tax saving, you must know tax slabs also.
Income tax payment on your hard-earned money is painful by the end. Isn’t it? Well! Do not worry. Many of us are sailing on the same boat. Unfortunately, we cannot eliminate that matter. We must abide by the law of the land and pay tax which helps the country run and take care of the society at large. The governments utilise our tax money for social security, medical care, development of infrastructure, and for many other purposes.
Alright! having known this fact, let us dive deep into what all we do for tax filing and the ways to save income tax in legally permitted ways.
There are a series of legitimate ways to save income tax under the income tax Act, 1961. It may include investing in government-backed securities like pension funds or it may be insurance premiums, investment in mutual funds, Atal Pension Yojana, Public Provident Fund, etc.
It is surprising to see the disparity in the total population of India and the number of citizens making the tax payment for the tax authorities. India is almost touching the population of 1,369.56 million by the end of 2020, has a tax-paying population of 1.46 crores which is too small to a huge country. Certainly, it does not mean that only 1.46 crores of the population are earning income, and the rest of the population in poverty.
In India, we have several routes in which we can save income tax under legitimate means. The government permitted certain exemptions and deductions on the total income of individuals and corporate. Remember when we say tax avoidance it is different from tax evasion.
Tax avoidance and Tax evasion
Are you wondering about tax avoidance and tax evasion. Isn’t it? Do not worry. I was one among you when I heard these two together 15 years back.
Tax avoidance is characterized as legal actions to use the tax system to discover methods to pay the lowest rate of tax, e.g. investing your savings and your spouse savings in the pension fund and any government-backed instruments to save tax.
On the other hand, tax evasion is an illegal step to prevent paying tax, e.g. not declaring income to the income tax and government authorities, hiding some of the sources of income, etc.
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Important sections for income tax exemption
If you are wandering about sections that brings income tax exemption, then here is the list of sections you must read and understand what all benefits you can enjoy from each of these sections. Below are some of the important sections that connect you to income tax exemption sections.
Below is the brief explanation of some of the important deductions and the permissible limits
Income Tax Saving Schemes
In India, the tax-saving season begins from April and ends in the next march. It applies to both salaried and non-salaried professionals. If we need to talk in the language that tax authorities speak, the assessment year begins from the 1st of April and ends on 31st March of the next year. There are several ways in which we can save tax and earn maximum tax benefits. Yet, tax planning, tax saving, tax-saving schemes are scary terms for many professionals across the world. The income tax saving options bother them only during the year-end when they get a huge cut in their salaries and earnings. The tax saving schemes make ways into individuals’ life mostly when they feel the pain of mandatory deductions from the tax authorities. A smart approach towards tax saving will always be suggested for the smooth and seamless financial management of individuals.
Choosing the right tax saving schemes is still a nightmare for many especially those who are from non-commerce backgrounds. Further, many individuals lack an understanding of the products, their benefits, and embedded limitations. They buy since they saving plans look bulky and attractive in the longer run. However, they ignore the challenges those saving plans pose as and when the days pass.
Further, income tax saving should not be the only reason behind any investments in saving schemes. There is an opportunity cost involved in every investment activity. Any saving schemes which is unable to earn the treasury rate (also called a risk-free rate) is not worth investing. Because our savings and investments should be able to off-set of the impact of inflation (In our next article we will discuss how inflation affects your savings and investment.
Here we will list some of the important income tax saving schemes u/s 80C.
- Public Provident Fund (PPF)
- Equity Linked Saving Scheme (ELSS)
- Children Tuition Fees
- Employee Provident Fund (EPF)
- National Pension System (NPS)
- National Saving Certificate (NSC)
- Unit Linked Insurance Plans (ULIPs)
- Sukanya Samriddhi Yojana (SSY)
- 5-year Tax Saving Fixed Deposit
- Senior Citizens Savings Scheme (SCSS)
- Life Insurance Premium
- Infrastructure Bond
- Contribution to the pension plan by insurers
- Repayment towards the principal of Home Loan
Tax saving tips
Finally, below are some of the best income tax saving tips for your easy consumption
- Make maximum use of the tax exemptions available under section 80C. Contact your financial advisors to know more about 80C
- Contribute to national pension schemes like NPS, APY, PPF
- Take Health Insurance to yourself and your family and secure from unforeseen huge medical bills that would drain your during worst health conditions
- Take tax deduction on interest charged on the home loan. Contact your financial advisors for better clarity
- Take exemptions on your House Rent Allowance
- Take exemptions 80D that allows tax exemptions for taking care of disabled dependents
- Take life insurance schemes and mutual funds for tax saving purposes
- Take children education tax exemptions
- Buy Sukanya Samridhi Yojana for up to two daughters
Hope you have enjoyed our article on how to save income tax
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