Tax saving or tax planning one of the crucial aspect for any tax payer all over the globe because remember money saved is money earned. There is a misconception among the masses that tax can be saved only through illegal ways but let me tell you there are plenty of legal and legitimate ways of saving tax. If one follows illegal ways to save tax that will lead to penalties, punishments and in some cases prosecution also, whereas Tax saving legally can lead to earning, if investment is made in tax saving schemes. One should start tax saving at the earliest as it is prudent to save money than paying it in the form of taxes. A person having total income exceeding 2.5 lakh should start investing in tax schemes right from the beginning of the financial year rather than worry about saving tax in the year end, moreover investing at the earliest will lead to better returns too.
Now let us focus on how to maximize our “Tax Saving”
- Tax saving can be achieved by availing deductions mentioned sec 80c it can be claimed as deduction to reduce the tax burden. It includes investment in Public Provident Fund (PPF), five year or more tax saving Fixed Deposit, National Saving Certificate (NSC), Sukanya Samriddhi account, Life Insurance Policy (LIC), investment in tax saving mutual funds .i.e. equity linked saving schemes etc.
There are few expenses also which can be claimed as deduction e.g. home loan principal repayment, tuition fee paid for child etc. under sec 80c.
Deduction of amount invested in New Pension Schemes (NPS) can be claimed under sec 80ccd and deduction of amount Contributed towards pension plan of LIC which comes under sec 80ccc can be claimed as deduction as well.
A sum of 1.5 lakh rupees can be claimed as deduction combining the above mentioned three sections and an addition deduction of 50,000 rupees can be claimed in NPS over and above 1.5 lakh.
- If you’re working in a business concern e.g. let us say MNC find out about all the reimbursements which that MNC offers like using company car, telephone expenses, travelling allowance, house rental allowance, leave travel allowance, etc. To sum up any type of expenses which you incur while performing your duty as an employee of the concern or the expenses which you incur on the behalf of the concern should be reimbursed and these allowances and reimbursements help in reducing tax liability (eligibility of amount to be considered as allowance and reimbursement will be decided by the employer according to status of the employee). These are deducted from your salary income if incurred actually, provided you can produce a valid proof for that.
- A whooping limit of 2.5 lakh can be availed as deduction on Interest paid on home loan under the head income from house property (but to avail full deduction of amount the loan has to be a bit huge).
- 100% deduction of amount paid as donation to political parties, PM relief fund and some notified NGO’s.
- Deduction of the amount of interest paid on education loan, provided the loan is taken in your own name, for higher studies of spouse, self, children or for a student for whom the person is a legal guardian.
- Deduction can be claimed for medical insurance premium under sec 80D up to a maximum amount of 20000 rupees, an addition deduction of 15000 rupees for parents and in case of senior citizen an addition amount of 30000 rupees.
- Medical expense of disabled dependent can be claimed as deduction under sec 80DD and it also includes medical treatment for the same.
- Deduction under section 80U can be claimed for disabled person for rupees 50000 and in case of severe disability the amount of deduction is rupees 10000.
Above we have discussed the areas and the ways through which tax can be saved. Other than the aspects covered above there are more to it, than just saving of tax. In long term an efficient and effective tax planning leads to wealth maximization. These are just the basic ways of saving your taxes for a more specific or accustomed tax planning which fulfills your need go for an expert advice.