Following are seven tips to help you plan your taxes better.
1. Know your taxable income
It is imperative to know your taxable income in order to determine the various deductions you are eligible for. For this purpose, you may identify the income received under various ‘heads of income’, such as Income from House Property, Income from Salaries, Income from Capital Gains, Income from Profits and Gains of Business or Profession, and Income from Other Sources.
2. Restructure your salary
Salary restructuring helps in reducing your tax liability to a great extent. You may opt for food coupons as up to INR 50 per meal is exempt from tax. You may also produce bills that help in reducing tax, such as transport allowance, medical allowance, and education allowance, besides others. Additionally, you may use company car instead of your personal vehicle to reduce your tax liability.
3. Claim tax deduction on the interest paid towards your home loan
A home loan repayment structure has two components, the principal amount and interest. You may claim tax deductions on the interest component of your home loan. Interest up to INR 2 lakh or the actual amount paid is eligible for tax benefits under Section 24 of the Income Tax Act, 1961.
4. Make investments
Section 80C of the Income Tax Act, 1961 allows deductions on investments made in certain instruments. These include Public Provident Fund (PPF), National Savings Certificate (NSC), Equity-Linked Savings Scheme (ELSS), and five-year deposits with banks and post office, among others. The maximum deduction allowed under this Section is limited to INR 1.5 lakh.
5. Make claims under house rent allowance
In case you are paying rent, you are eligible for tax benefits under Section 80GG of the Income Tax Act, 1961. If house rent allowance (HRA) is a part of your salary structure, the amount exempted is the least of the actual HRA received, the rent paid by you minus 10% of your salary, and 50% of your basic salary (if residing in a metropolitan city) or 40% of the salary (if residing in a non-metropolitan area).
6. Make investments in insurance products
You may invest in life insurance or term insurance plans and claim tax benefits on the premiums paid under Section 80C of the Income Tax Act, 1961. Furthermore, you may purchase health insurance policies and enjoy tax deductions under Section 80D of the Income Tax Act, 1961.
7. Donate to charity
Donations made to specific funds or charitable institutions are eligible for tax benefits under Section 80G of the Income Tax Act, 1961.
Having a tax-saving plan helps to manage your finances efficiently. You may keep the aforementioned tips in mind and reduce your tax liability substantially. By following these tips, you may reduce taxes and save a significant amount of money.
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