How to Save Taxes: Pro Tips to Follow

A portion of the income that we pay to the government is termed income tax. The same is typically based on the percentage of an individual’s taxable income including salaries, wages, rental income, and profits from businesses. The tax money goes towards funding administrative and developmental projects, services, and more.

While individuals do not have the option to evade income tax, they can lower the burden through proper tax planning. Notably, the Income Tax Act, of 1961, has several provisions of deductions for savings, investments, and even expenditures incurred by taxpaying individuals.

Based on applicable provisions, tax-paying entities can file for tax returns and claim deductions as in a given financial year.

This makes it imperative for taxpayers to not only know about the provisions that help them save money on taxes by learning the process to claim the deductions. In this article, we will discuss the different effective ways how to save taxes and improve tax planning.

Best Ways to Save Taxes and Save More

Here’s how to save tax in a financial year and mobilize your savings –

• Investing in tax-saving options

Individuals who invest in tax-saving investment instruments that come under the purview of Section 80C of the Income Tax Act are entitled to tax deductions. By claiming such deductions, individuals can lower their tax burden significantly.

Some of the most lucrative investment options that facilitate savings include Public Provident Fund, Equity Linked Savings Scheme, National Pension Scheme, and National Savings Certificate.

• Claiming tax returns on the deducted amount

Taxpayers also have the option to allow their employers to deduct each month. However, if the same exceeds the total expenses they made on non-taxable payments they can file for returns on the extra tax paid.

• Get a health insurance policy

In addition to providing significant financial protection, a health insurance plan may also help buyers to save money on their income taxes. This is due to the provisions of Section 80D of the Income Tax Act, which enables policyholders to claim tax deductions. It is crucial to note that the sum exempted under the clause is determined by the insured’s age.

• Invest in government schemes

There are many government-backed plans that provide substantial returns on investment as well as tax incentives. For example, in Section 80C, those who park money into government programs can claim as much as Rs. 1.5 lakh annually on the money they invested.

Public Provident Fund,  National Pension Scheme, Senior Citizen Savings Scheme, and Sukanya Samriddhi Yojana are a few of the most prominent government-backed plans with tax benefits.

• Get a life insurance policy

Section 80C accounts for the premium payments you make, while Section 10(10D) weighs in the sum assured at maturity or death of the insured, whichever event occurs first.

If the insurance policy was bought after April 1, 2012, tax savings of up to Rs 1.5 lakh paid on policy premiums (annually) can be claimed as deductions under Section 80C. However, the amount should be less than 10% of the total sum assured.

If the policy was bought earlier than April 1, 2012, Section 80C allows individuals to submit claims as long as the accumulated premium payments are less than 20% of the actual sum assured.

Under Section 80CCC, either purchase or renewal of insurance coverage or annuity payments made through salary is also eligible for exemptions for a maximum of Rs 1.5 lakh annually. However, note that only a few pension funds under the purview of Section 23AAB are entitled to tax exemptions of a maximum of Rs. 1.5 lakh annually under the provision of Section 80CCD(1).

Park money into investment instruments under Section 80C

There are several tax-saving investment options available to individuals and HUFs in India. One of the most popular ways to ensure tax benefits is through deductions under Section 80C of the Income Tax Act, of 1961.

This income tax provision encompasses a range of investment options and expenses that individuals can claim deductions. However, the income tax claim limit is capped at Rs. 1.5 lakh in a given financial year.

Applying for a home loan

India has several government-mandated schemes and initiatives in place that are trying to make quality housing more accessible to the public. For example, schemes such as the Pradhan Mantri Awas Yojana (PMAY) and Delhi Development Authority (DDR) are popular housing schemes in India.

Besides these government-backed schemes, Section 80C and Section 24(b) of the Income Tax Act of India also help individuals looking to buy a house to lower their overall financial liability by allowing them to lower their tax burden.

To elaborate, Section 80C of the Income Tax Act entitles individuals to claim deductions of a maximum of Rs. 1.5 lakh on income they spent annually on repaying the principal borrowed home loan amount. Meanwhile, Section 24(b) of the act enables them to claim tax exemption on the interest portion of their home loan.

The limit for the same is set at Rs. 2 lahks annually. Notably, for those who rent out their new home, the entire loan interest component is exempted from their income tax computations.

Individuals who choose to purchase a property to build a house can claim deductions under Section 24(b). However, they can claim the tax benefit only if the construction on the property was concluded within 5 years. Notably, first-time home buyers can also claim additional tax benefits under Section 80EEA.

However, it is crucial to remember that each of these income tax provisions requires individuals to meet a set of eligibility criteria and fixed conditions. This makes it important for individuals to consult their financial adviser to ascertain which of these provisions would help them to save most on their tax liability.

Hence, these are a few potent ways how to save taxes and boost savings. Based on one’s risk appetite, financial goals, and tax planning, one can choose the most suitable option and proceed accordingly.

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