Almost everyone is looking for ways to save money on their income taxes at all times. In today’s world, no one wants to miss out on opportunities that can be used to save money on tax payments.
The investments, charity and other payments which could reduce the taxable income which will reduce the tax burden are available to the common man. Here are 6 simple steps you can take to reduce your taxable income taxes.
We all have a savings account where we add some money on a monthly basis. This account can help you to minimize your tax liability. As per the current guidelines as laid by the IT-Department under section 80TTA, interest earned on Saving account up to INR 10, 000 is exempted from taxation. This means that the additional income which was generated in form of interest on savings account will not be taxed if it is within INR 10, 000 for one assessment year. If the income earned in form of interest exceeds Rs.10,000 then only the amount exceeding Rs.10,000 will be taxed.
#2 – Invest in Equity Mutual Funds
Share market has become a hot-spot for investors. Many people invest in shares with a view to get quick money. However, the Government of India wants its citizens to invest for a longer period of time. The Income Tax Act, Section 80C, allows tax benefits up to 1,50,000 for investments in ELSS (Equity Linked Savings Scheme). As one of the shortest tax-saving instruments, it has a lock-in period of three years. The income generated on sale of shares would be treated as long-term capital gains. To know more about capital on sale of shares click here
#3 – Continue to avail the benefits of Section 80C
Section 80C of the Income Tax Act is one of the most important sections for a taxpayer. Under this section, the tax payers can enjoy a deduction of up to INR 1,50,000. Some of the areas where investment would serve as a deduction are:
- 5-year fixed deposit with post offices and banks
- Equity Linked Saving Scheme
- Life Insurance Premium
- Tuition fees for children (max. of 2 children)
- Principal amount paid against home loan
- Public Provident Fund
- Stamp duty and Registration fee
These deductions will reduce your taxable income and thus reducing your tax burden. But don’t forget limit of Rs.1,50,000 is threshold limit of deductions under section 80C, 80CCC, 80CCD. To see the list of deductions available under 80C click here
#4 – Saving through Home loan
- Deductions can be claimed for both principal and interest repayments.
- Section 80C only allows deductions for principal repayments for new houses.
- (Section 24) allows you to claim interest deductions on loans not just for property purchases, but also for repairs.
#5 – Medical Bills
- If you are a salaried taxpayer then the IT Department allows you to claim a deduction of up to INR 1,00, 000 on an annual basis (In the case of senior citizen (self) and senior citizen (parents).
- The amount received as medical reimbursement from the employer up to Rs.15,000 will not be taxed.
- The amount can either be used for your medical bills or for any of the family members*.
Here family member means Spouse and the children (Children may be dependent or independent or married or unmarried) and wholly dependent parent. Sister, brother.
#6 – Paying rent to your parents
- If you live in your parent’s house, you can claim a House Rent Allowance exemption by paying them rent. You can do this only in case the property is registered in your parent’s name.
- The rent received will be the income of the parent and will be taxed accordingly but you can pay rent that will not make you liable to pay tax on the rental income earned by the parent.
- But don’t forget the rental income is taxed after a standard deduction of 30% of the gross rent received net of municipal tax paid if any.
- Moreover, if you want to claim more deduction of rent paid, deductions under 80C for the parents should be also used. It is preferable if you enter into a rent agreement with them and make them an actual payment through the bank.
One could reduce its tax liability more by donating the funds. This deduction can be claimed under section 80G. Click here to know more. Due to the actual payment of funds as a charity, this deduction is not used that much. Thus, we find that there are numerous ways to reduce your overall tax liability. But, the most important element is to be a taxpayer. Do not take taxation as a burden, rather treat it as a privilege that makes you a contributor to the nation’s development.