Tax planning can give goosebumps to an individual if not planned systemically. If you have just joined an organization or started your own company, you must have already started contemplating about tax planning. If you are a newbie to this discipline, you have landed on the right page.
The Income Tax Act has certain sections under which tax benefits in the form of deductions can be claimed by the assessee at the time of filing Income Tax. The taxpayer can be a salaried individual or self-employed. The total tax deduction, however, one can claim under sections including Section 80C, Section 80CCD and Section 80CCC should not cross beyond 1,50,000, as specified in the Income Tax Act. Besides, an additional tax deduction of 50,000 can also be claimed in case of investments made in National Pension Scheme (NPS), beginning from the financial year 2015-2016 onwards.
Listed below are the 10 simple tips that you can incorporate into your tax planning.
- Buying Health Insurance Policy
Buying a health insurance policy can make you a smart planner when it comes to tax planning. According to Section 80D of the Income Tax Act, the assessee can avail a deduction of up to 15,000 for insurance of the entire family. Here, the family includes only you, your spouse and your children. It’s never too late to buy a health insurance policy. If you haven’t bought it, it is advisable to buy one as early as possible. The benefits include not only reduction in tax liability, but also covers medical expenses in the event of an accident or any health issue.
- Making Donations to Charity Organization
All of us must have donated at some point in our lives. This may sound strange to many but it’s absolutely true that you can save a lot during your tax assessment if you have been donating to select charity organizations. Section 80G of the Income Tax Act states that the assessee is eligible for tax deduction up to certain percentage depending on the amount of donation.
- Investing in Mutual Funds
Mutual funds can be another investment avenue that not only helps in creating wealth over long-term but can also shoulder your tax burden. Among all tax saving instruments, ELSS mutual funds have the lowest lock-in period of 3 years. ELSS mutual funds not only provide tax benefits but also good returns due to the equity nature of such investments.
- Expenses Toward Medical Bills
If you have medical bills of self or any immediate dependent in your family, keep them safe! You need not pay any tax for medical expenses amounting up to ₹15,000 per year. Any amount beyond the aforementioned amount is taxable.
- House Rent Allowance (HRA)
You are eligible to save on taxes if you are staying in a rented house. On the other hand, you are excluded from the list of tax liability beneficiary if you live in own house. In other words, the income earned in the form of rent if you own a house and you have rented a part of it, your income will be taxable.
- Telephone/Broadband Bills
You can save on taxes if you are using telephone or broadband service. Just check with your company HR if you can claim reimbursement on telephone/broadband bills. So, it’s advisable to keep them safe until you have submitted them as proof to your respective HR manager to claim a deduction.
- Leave Allowances
The travel allowances received from your organization to travel within the country makes you eligible for tax benefits. In case you have received Leave Travel Allowances, kindly do not ignore it as such micro benefits will make a big difference in the total.
- Mean Coupons
If you are receiving meal vouchers from your company then you get a relief on up to ₹2600 per month. For this, you can approach your HR manager and discuss the procedure on how to avail tax benefits on meal coupons.
- Payment of Interest on Home Loan
Home loan as a tax savings option in your tax planning is highly advisable as benefits can be claimed under three different sections of the Income Tax Act.
The claim for deduction can be made in parts as per the Income Tax Law. Under Section 80C of the Income Tax Act, you are can claim a deduction on the principal amount, as much as ₹1,50,000. While on the other hand, tax benefits on the interest paid can be availed on up to ₹2,00,000 under section 24.
- Tuition Fees for Children
Not many parents are aware that the tuition fees paid for their children to make them eligible to avail tax deduction benefits under Section 80C of the Income Tax Act. The reduction in tax liability is applicable only on up to two children. According to the ACT, the academic institution should be located in India. Furthermore, play school, nursery and pre-nursery fees can also be claimed for deduction.
A higher percentage of taxpayers consider investments as the best option when it comes to claiming tax benefits under various sections of the Income Tax Act. Following the aforesaid steps goes a long way toward optimizing your tax planning, thus helping you to save substantially from your gross total income.
Moreover, the tax paid to the government not only makes you a responsible citizen but also helps the government in maintaining economic stability by allocating resources for the overall development of the national infrastructure such as transportation, healthcare, public welfare, education, science & technology, and more.