It’s that time of the year again! With the financial year around the corner, all of us have started planning our tax savings. Saving taxes can be a complicated process, if not planned in advance. If you feel you are paying too much tax, then the good news is that, with the help of some tax planning tips, you can make a remarkable difference to the tax amount you pay. After all, saving money is as important as earning, and that is achievable through proper tax planning.
Keep a Check on Your Salary Slip
You need to pay an Income Tax on your basic pay. Your HRA is exempt from taxes. However, the HRA exemption is only applicable if you are living in a rented house and paying a monthly rent.
Make Optimum Use of Section 80C
Having a more in-depth look at Section 80C can help you maximise your takeaway salary. You can invest up to INR 1.5 lac in various tax-saving instruments. If you’re trying to figure out where you need to invest to maximize your deduction under Section 80C, take a look at the below-mentioned investment options:
- Public Provident Fund (PPF)
- National Saving Certificate (NSC)
- The principal component of home loan repayment
- Contribution to employee’s provident fund (EPF)
- Life Insurance Premiums
- Equity Linked Savings Schemes (ELSS)
- 5-Year fixed deposits with banks
Avoid Last-Minute Tax Planning
Planning taxes for the last moment leaves very little time for you to go through different investment options. It can also become a burden to invest a lump sum amount just to save tax. We recommend you to invest in small amounts regularly through Mutual Funds and SIPs all year, thereby not eating a lot of savings at the last moment.
Investing, not only helps you in saving taxes but also fulfils your goals. One can convert his/her tax-saving investments into high returns by this. For example, let’s say you have a goal to buy a car in the next three years. You can start with investing small and regular amounts in Equity Linked Saving Schemes and after three years, when the lock-in period comes to end, you can withdraw and reinvest into your goal. Thus, helping you reach your financial goals and stability.
Read more about Investments here: 6 Investment Tips to Manage Your Money
If you are making donations to charity or an NGO then it is eligible for a tax deduction so make sure to avail it. 100% or 50% of the amount donated is eligible for deductions under Section 80G. However, from Financial Year 2017-18 onwards, any donations made in cash that exceeds Rs 2,000 will not be allowed further as a deduction. It can only be claimed when the contribution has been made via cheque/draft/cash. However, deductions are not allowed from donations done in cash exceeding Rs 10,000.
These funds are not only a good way to plan for your retirement, but also under Section 80CCC, you can reduce your tax stress when you contribute to specified pension funds up to Rs. 1.5 lac per annum. Moreover, you are also eligible to get tax benefits on withdrawal if you take out up to 1/3rd of your total pension funds.
Leave Travel Concessions
In certain companies, employees are also eligible for Leave Travel Allowance, which is also a part of your salary structure. Under this, the employee is eligible to claim a reimbursement of expenses incurred on travel for himself and his/her family members for any journeys undertaken within India on the actual travel costs. However, one needs to keep in mind that LTA exemptions can only be claimed for two journeys in the cycle of 4 calendar years.
Employee Contribution to Provident Fund
Employee Provident Fund is a social security initiative where the employer and employee contributes an equal amount every month towards the employee’s pension and provident fund. It is 12% of one’s basic salary and the government decides the interest rate which starts at about 8.65%. Therefore, upon maturity, the returns on this are exempted from tax. Moreover, EPF contributions can only be claimed for tax exemption under Section 80C of the Income Tax Act.
Read more about EPFs here: What is EPF Scheme and How to Check Your PF Balance?
A retirement benefit that is provided by an employer to an employee if he/she renders five years of service in the organization. However, the amount is paid only upon retirement or resignation.
Explore Other Sections
Apart from Section 80C, there are several other sections too that can help you save taxes, like:
- An employee can avail of tax benefits on the premium paid for any health insurance policy under Section 80D.
- Interest paid on an education loan can also be considered under tax exemption under Section 80E.
(Check out 'Learn & Grow with Wizely' to learn more about tax planning and investments.)