Several people think that they pay excess taxes, but all they do is complain and do not pay heed to figure out ways to save their taxes. Rather than complaining one must find out ways that can help them to save their taxes and for this they require proper planning.
One of the most important reasons why people are unable to save their taxes is that they are not aware of the ways to save their taxes. Here we have discussed the following steps that one can use in order to save extra taxes.
Restructure Your Salary and Save Taxes
There might be several expenses that are incurred just because your job demands them. Wherein, all these expenses will end if you leave your job. Let us suppose that you have to wear a uniform as your job demands it. Apart from this, you have to travel daily to the office for your job. This will end if you will switch your job.
You might require spending money to entertain your clients as your job might require it. Plus, you also might have to be stay updated if your job demands it. For this, you need to read certain newspapers, books or magazines for it. These expenses will also end once you leave your current job. This implies that the expenses made on these are forced and thus your employer needs to pay for them.
The expenses incurred on these activities should not be part of your income as you are merely the medium of such expenses. Thus, these expenses must be borne by the employer itself. In such case, you need to talk to your employer and speak them to change the structure of your pay. Ask them to add allowances and perks for such expense. Make sure that these must not be a part of your salary structure.
If these perks and allowances are genuine then they are non-taxable. In order to make these allowances tax-free make sure that you provide the proof of tax.
Allowances that help you to save your Taxes are:
- Newspaper, Books and Magazine
- Office Entertainment
- Medical Treatment
- Personality Development
- Telephone and Mobile
However, you need to know the fact that the allowances that you get depend on your grade. You cannot get all of them. The eligibility to get these allowances is decided by the employer and all you can do is just demand them. You can also get the tax deduction on the professional tax paid by you every month.
Save Tax On Rent Payment
There are times we need to move to a new city to get growth in job. The sole motive is to render our services to the company and not leisure. Therefore, the company is liable to give you accommodation or pay for the accommodation. The job is the only reason why one rents a place. Thus, expenditure on accommodation is eligible to get tax deductions.
House Rent Allowance (HRA) is given as part of your salary structure. Therefore, you need to subtract HRA from your gross income. However, HRA can be used completely for saving your taxes. In order to get tax benefits from HRA you need to use a set formula.
You need to deduct the lowest among these from your gross income.
- HRA was given by your employer
- 50% of the basic salary that comprises of the DA if the employee resides in any of the metro cities of India (New Delhi, Kolkata, Mumbai, and Chennai). Otherwise, 40% of the basic salary that includes DA.
- House rent paid, subtracting 10% of your basic salary plus DA.
Leave Travel Allowances and Medical Expense
Along with this, there are certain personal expenses on which you can avail tax exemptions. These personal expenses get deducted from the gross salary. Medical allowance can be given to you by your employer as per of your salary. For this, you need to refer this to the HR department.
The medical allowance is tax-free only when you produce actual medical bills. So, make sure that retain your medical bills. This deduction is restricted to Rs 15,000 for a financial year. You further need to get receipts of the medical expense incurred by your dependents. Your employer also has the ability to get leave travel allowance. As an employee, you are eligible to get tax-free leave travel allowance.
- This can be relived two times in a slot of 4 years.
- The allowance is given only when you are travelling and you have availed leaves.
- Allowed when the visit is only within India.
- The route of your travel must be the shortest one.
- The maximum claim that can be for AC-I for a train journey and for air travel it can be for economy class.
|You may like to Read: How to e filing income tax|
Medical Insurance Deduction
A tax deduction is given for medical expenses and this deduction was over and above the limit of 1.5 lakhs. You can save tax on the premiums paid for health insurance for your family as well as parents who depend on you. Health checkup is one of the best ways to save your taxes. These expenses can be deduced from the complete taxable income. A deduction limit of till Rs 25,000 for health insurance premiums paid for oneself or family. Plus, health checkups till Rs 5,000 can also be included.
- Premium paid for health insurance for parents is Rs 25,000. However, if the parents are 60 years or above, then the limit goes up to Rs 30,000.
Leverage Interest Paid On Home Loan
Another major tax saving option is interest paid on Home loan. In budget 2016, the deduction limit on interest paid on the home loan was increased to 2.5 lakhs. This deduction on the home loan can prove to be quite a big tax saving investment. To get the benefit to the fullest make sure that your loan amount is big enough. In order to multiply your income tax savings , you can also double them using the joint home loan.
Begin with Capital Gain to Save Tax
Salaried people have to provide capital gains tax on the investments they make. Short-term capital gains are attracted by shares, wherein when it comes to gold and property both short and term capital gains get are attracted to capital gains. However, you can start the journey of your capital gain from an investment with the capital loss of another investment.
This allows you to carry ahead your loss of capital up to 8 years. This puts forth quite a good chance of saving your taxes with the help of capital loss. Let us assume that one suffers a trading loss in business. This loss is allowed to take forward until seven years. In following years your trading profit can be started through this big loss.
Let’s Your Money Go For Charity, Not Taxes
If you donate a part of your income then you can save your taxes using this. However, you need to note that the option for 100% tax savings is not applicable on all the options. Donations made to several notified NGO, PM relief fund, and political parties’ offers you 100% tax benefit. Further, to claim tax rebate you can donate a part of your income to a religious body and scientific institutions.
Procrastinating Investments and Tax Declarations
One of the most important tips to save your taxes is to declare them. For this, the employers are required to pay tax in advance for every quarter. Therefore, TDS is deducted from your monthly salary. Moreover, the TDS deductions are made according to the projected tax liability of a person for that particular financial year.
It is noted that the projected tax are quite high if you are unable to timely declare your planned tax saving, yearly expenses and investment of that particular year. In the first quarter of every month, the employer deducts TDS of each financial year. The possibility is that you might end up exceeding the time limit when you declare your instruments for saving your taxes.
Chances are that the company ends up deducting extra TDS than actually required. This is when you are required to claim tax refund at the time of filing income tax return, but you will have to pay extra taxes for that particular time. Therefore, you can even give a declaration of taxes at the beginning of the financial year itself. However, there is an opposite scenario that is worrisome. For instance, let us suppose that you declare all the options that you can think of to save the tax for a maximum limit at the time of declaration.
There is a lot of burden of investment in the month of January and February on those who procrastinate the saving and investments for the last quarter. Consequently, they need to reserve a lot of money for that time. Therefore, we advise you to start your tax saving investment from the very beginning of the year.