Best Ways to Save Tax Legally

It is difficult for a common man to survive in today’s world. The constant inflation has already made his life miserable and above that, the tension of paying high taxes, at the end of the financial year has taken a further toll on his health.

You might not able to shun completely the financial problems, but you can certainly reduce the extent of your expenses, at least, in case of tax payment, if you put your mind into it. So, why not explore some legal ways, which can help you to save your taxes?

Tax Saving

  • Tax Saving under Sec 80 C, Sec 80 CCC & Sec 80 CCD– If you want to save tax, then you need to start planning your investment. In order to encourage people to save and invest money in a resourceful way government of India allows a deduction for tax payment if a person invests in any of the instruments listed under Sec 80 C, Sec 80 CCC & Sec 80 CCD.

Some of these popular investment instruments are as follows-

  • Pension Plans
  • Life Insurance Policy
  • Public Provident Fund
  • National Savings Certificate
  • Fixed Deposit for 5 years (Maximum Investment up to Rs. 1.5 lac)
  • Employees’ Provident Fund
  • National Pension Scheme

The maximum deduction allowed under all three sections combined is Rs.1.5 lac. However, if a person invests in National Pension Scheme, he gets an additional deduction of Rs.50, 000, under Sec 80 CCD.

  • Investment on Health Insurance– There is another awesome option that ensures not only your health but also saves you tax. Yes, we are talking about Health Insurance premium of the insured, his spouse or kids. Under, Sec 80 D, an individual can save up to Rs.20, 000, whereas, a senior citizen who invested in Health Insurance will be provided a deduction of Rs. 25,000 to Rs.30, 000.
  • Buy a Home, Save Tax– Taking up loan to buy home for saving tax is a smart decision. Since, tax deduction in case of home loan is claimed under three different sections, thus the taxpayer can enjoy huge tax relief.

The Repayment of Home Loan divided into two parts-

  1. Repayment of Principle amount- Under Sec 80 C of Income tax, an individual is allowed a tax deduction of up To Rs.1.5 lakh in case of repayment of the principal amount of home loan.
  2. Repayment of Interest Amount- The individual is allowed a maximum deduction of up to Rs.2 lakh, under Sec 24 and additional deduction of Rs.1 Lakh for the first time homebuyers under Sec 80 EE, in case of repayment of interest amount of home loan.

However, in case of not self-occupied home loans, there is no limit to tax deduction under Sec 24.

  • Donation and Charity is good– Most of the people use donation and charity to save tax. If you are into donating money for charity, social cause or contribute towards a National Relief Fund, then you should donate money as often as you can. Under Sec 80 G of Income Tax, 100% of donation claimed as a tax deduction or at least 50% of donation claimed as a tax deduction. In fact, if you are paying an amount up to or less than Rs.10, 000 as a donation, then you can give it in cash, but if the donation amount is more than Rs.10, 000, the individual requires to pay it by cheque.
  1. Long-term Capital Gain Saves Tax-If an individual is earning long-term capital gain from the sale of long-term asset, then he is exempted from paying tax for that gain. Say, if an individual has an old property and he sold it in profit, then under Sec 54, he is excused for paying taxes for that gain.
  • Investment in The Name of Your Child- If investment is made in the name of your child or maximum two children, you will get the small deduction of Rs.1, 500 per child. You can go for fixed deposit of 1 year and the 10% return that you will be exempted from tax.
  • Education Loan Saves Tax-If any individual has bought education loan for himself, his spouse, his children or any student that he is a guardian of, then he is excused from paying tax in case of repayment of interest of education loans under Sec 80 E. However, the deduction is allowed only for interest amount, not principle amount.
  1. Senior Citizen Benefit– Government always encourages people to save or invest. In fact, senior citizen, aka people above 60 have some extra privileges, if there is an investment after their name, in case of tax payment. So, if an individual does investment in the name of his parents who are 60, then he can save up to Rs.2.5 lakh. If his parents are above 60 years, then the deduction amount will become Rs.3 lakh and if parents are 80+, then the deduction amount will be Rs.5 lakhs. Thus, it is one of the best ways to save tax legally.
  2. Sec 80CCG Tax Saving Criteria– If the annual income of an individual is less than Rs.12 lac p.a., then under Sec 80CCG, he is allowed additional tax deductions if he invests in shares of specified companies and mutual fund. This tax deduction is named Rajiv Gandhi Equity Saving Scheme.
  3. Sale of Equity Shares– If an individual owns equity shares for more than 1 year, then the capital he gains will be exempted from the tax payment.

Conclusion: – If you do not declare your planned tax saving, investment and expenses of the year, the expected taxes will be higher. Consequently, the employer would start deducting TDS every month for the first quarter of the financial year. It might happen that when you declare all of your tax savings measures, it might be very late. Therefore, it is better to start saving tax through regular investment from the beginning of the financial year.

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