By CA Gauri Chadha
A popular phrase ‘A penny saved is a penny earned’ can do wonders for you. Proper tax planning can save you thousands and when invested properly can make a corpus of lakhs or even crores over the years. Tax planning is a legal way to reduce one’s tax liability. The income tax act allows many exemptions and deductions which if utilized properly can reduce the liability manifold. Know how to save your income tax in India with different ideas that you can incorporate as a part of your tax planning:
Ideas to Save your Income Tax :
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Restructure your salary
With the introduction of standard deduction major components of tax exemptions like medical and transport allowance have been merged into it. However, there is still numerous number of exemptions available to a salaried employee. The common ones being HRA and LTA, but we often forget that there are other exemptions as well like children education allowance, hostel allowance, meal allowance, uniform allowance and there are few reimbursements as well on which you can save tax like telephone expenses, internet expenses, driver’s salary, fuel reimbursement. You can always sit with your HR department and restructure your salary to save more tax.
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Utilize your common tax-saving sections fully
Sections like 80C, 80D and 24 are most commonly utilized sections. In 80C the maximum deduction is 1.5 lakhs which people usually cover it by Public Provident Fund (PPF), Life Insurance Premium, National saving certificate (NSC), Equity Linked Saving Scheme (ELSS), Tuition fee paid for children for up to 2 children, Housing Loan Principal. If you have any margin left in 80C you must utilize it completely. Then we need to look upon 80D- Medical insurance which is a must in today’s time where for any treatment nothing costs less than a few lakhs, and of course if you have a housing loan then the tax benefit U/S 24 for the interest component. One of the tax-saving section we often forget is the additional benefit of Rs. 50,000 in National Pension Scheme (NPS) U/S 80CCD which is over and above the 80C’s Rs 1,50,000 limit.
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Book regular LTCG on equity investments
The reintroduction of Long Term Capital Gains tax after 14 years brought in a deep correction in the stock market. 10% of LTCG has levied on profits above Rs 1 lakh. Now to escape from this tax you can book your LTCG every year while it is below Rs 1 Lakh and then reinvest it the very next day. You can save a huge amount of tax by doing this exercise as and when your profits are about to exceed the threshold.
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Form a HUF (Hindu Undivided Family)
As soon as one gets married HUF comes into existence as per Hindu law, but how many of us know that we can take tax benefits by formally getting a HUF into existence i.e. by applying for a PAN card. A HUF needs to have a separate PAN card to avail the income tax benefits. If you have multiple sources of income then HUF can prove to be a major tax saving tool for you. Say for Eg if you and your spouse earn an income above Rs 10 lakhs and you also have an inherited property which generates rental income. In this case, if such rental income is added in your and/or your spouse’s income it will be taxed at 30% whereas if the same is added to HUF’s income you can take the benefit of Rs 2.5 lakh basic exemption limit, various deductions like Section 80C and most importantly the individual slab rates shall apply thereby giving the slab rate benefit as well.
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Donate money and save tax
The income tax laws allow deductions of 50% or 100% of the amount donated to any organization which is approved by the Government. There are times we do donate money for charity but forget to collect the donation slips which can fetch you a deduction in income tax U/S 80G. All the donations made do not qualify for the deduction you can check the list of eligible organizations online.
All these tips can help you to save your income tax liability considerably. The first step in any financial planning is to reduce your tax outgo and thereby set future goals and invest the money accordingly. It is always advisable to make the financial decisions in the beginning of the year.
