Looking for smart, simple, and legal ways to reduce the amount of taxes you have to pay? Make use of these top tips listed here and save big on your tax payments.
Every adult, be it a salaried professional or a self-employed businessman, wants to increase their income while cutting down on the taxes they pay to the government. Just because you want to reduce the taxes you pay doesn’t mean you have to take the unethical route by fudging numbers, or by investing in Benami property.
In fact, there are several legal ways to save taxes in India. Here is the list of the top ways to save on income tax in India.
- Invest in Tax Saving Instruments
Yes, you read that right. Several investment options help you save taxes. All investments that come under section 80C are eligible for tax deductions. This means that the amount you invest in these is deducted from your overall taxable income.
Also, several of these investments are a part of the EEE category, meaning you don’t have to pay any tax on investment, earning, as well as redemption. However, the maximum limit for such 80C deductions has been capped at Rs 1.5 lakh per year after the 2014 budget.
Some of the investment options that save tax include:
- EPF (Employee Provident Fund)
- PPF (Public Provident Fund at post office, SBI, and other banks)
- ELSS (Equity Linked Savings Scheme)
- Sukanya Samriddhi Account
- Tax-Saving Fixed Deposit
- NSC (National Savings Certificate)
- Senior Citizen Saving Scheme and several others
- Tax Saving Expenses
Some regular expenses that you make are also eligible for tax deductions. However, these costs are also included in the limit of 80C.
Some expenses that are eligible for tax saving include:
- Tuition fees for either children or self
- Repayment of home loan principal
- Premiums for insurance schemes
- Medical Insurance Deduction
You can save tax when you pay premiums for a medical insurance policy for your family as well as aged dependent parents. Similarly, health checkups are also eligible for tax deductions. All these expenses can be deducted from your overall income.
Additionally, medical insurance expenses do not come under the 1.5 lakh limit mentioned above.
- The interest earned from Savings Account
Did you know that you don’t have to pay TDS on interest income you earn from a bank savings account if it’s less than 10,000 rupees? For instance, let’s assume that you have earned a sum of 18,000 rupees on all your savings bank accounts taken together. Then you have to pay TDS only for 8000 rupees and not for the entire amount.
- Claims made on Life Insurance or Maturity of the Insurance Policy
According to the Finance Act of 2003, any income you receive, when you surrender your insurance policy or make a claim, is tax-free if the premium paid is less than 20% of the assured sum.
Any scholarship you earn for education is totally tax-free, irrespective of whether the scholarship is from a government authorised body or a private trust.
- Profit gained by selling shares/mutual funds
Investing in mutual funds and stocks is a great way to enjoy tax-free incomes. For instance, if you purchased a share for Rs 1,00,000 and its value increases to Rs 1,20,000 after a year, then you don’t have to pay tax on the profit gained (20,000). The same applies to mutual funds too.
However, if you sell the product (mutual fund or share) within one-year of holding, then you have to pay tax for the profit earned.
And, There’s Plenty More
Apart from these seven tips listed here, there are plenty other ways to save taxes legally. Do your homework and search around for the best ways to cut down on taxes while keeping it all legal and clean.