Taxes are undoubtedly great but they are a toll for those who have a lot of responsibilities. So, if you think that you pay too many taxes and want to curtail them then you need to go for proper tax planning. There are numerous ways in which we can save our taxes. The important things we need to note is that there are several things that we do are actually tax-free. However, we do not know about them. For example, insurance investments are tax-free, but you are not aware of them. Thus, all you need to have is a proper planning to save your taxes.
In this blog, we will discuss the best ways that can help you to save your taxes.
There might be a lot of expenses which you do just because your job demands it. In case if you switch your job right away, you will have to spend money in order to get settled in the new place. For instance, you might have to wear a uniform just because of your job. Moreover, you might also have to travel to the office or your client’s office daily just because your job wants you to do so. Further, you might be spending on the clients so as to fulfill your job.
Moreover, you might also need to read some specific newspapers, magazines as well as books to fulfill the purpose of your job. These expenses will go away as you will leave the job. This means that these expenses are forced; therefore your employer needs to pay for them. Therefore, you need to know that these expenses must be borne by the employer. Therefore, we need to understand that you are only a medium through which we are making such expenses, thus they need not be a part of your income.
If you are doing so then you need to have a word with your employer and request them to restructure your salary structure. You need to get allowances and perks if you are spending money on such things. Make sure that this is not a part of your salary.
If actually incurred then taxes are not levied on these allowances and perks. In order to avail these allowances that are tax-free, you need to give proof of these expenses.
Following are the allowances that will help you to save your Taxes:
These allowances are given as per the grade of the employee. Therefore, you cannot ask for all of them.
This is further dependent on the employer who decides the eligibility criteria of employees to avail these allowances. There is a professional tax that you need to pay every month and tax deduction is also applied to it.
There are times when we need to relocate to different city or state in order to seek new job opportunities. Most of the companies do not offer us accommodation; therefore, they need to rent out. Thus we need to know the fact that we live in a rented house as our job requires us to do so.
Thus, we need to know the fact that the expenses of paying the rent need to deducted from the income which is taxable. House Rent Allowance is given by several employers as a part of yours salary. This HRA is subtracted from the gross income of the employee. However, HRA cannot be used completely for saving your taxes. In order to calculate tax benefits from HRA, you need to use a formula.
Lowest of the following can be deducted from the gross income:
HRA calculator can be used in order to calculate the tax benefit. HRA is quite an incredible way to save your taxes. Therefore, make sure that your salary structure comprises of HRA. Make sure to get receipts of the rent you from the owner of your house. If case if your yearly rent exceeds 1 lakh then you have to submit copies of your lease agreement and PAN card details of the owner of the house. Rent can also be given to parents. But make sure that you fulfill all the formalities of the lease agreement.
You need to know that there are several personal expenses on which you can get tax exemptions. These Expenses also get deducted from your salary. Medical allowance is given to the employees as part of the salary. You need to cross check this with your HR department. In order to make your expenses tax free, you need to bring forth the actual bills of your expenses. Therefore, make sure that you collect all the bills of the expenditure made on medicines. You need to note that every financial year you can get only Rs 15,000. Receipts of expenditure made on medical expense on the dependents can also be submitted. You are also entitled to get leave travel allowance from your employer.
You are eligible to get leave travel allowance if:
Invest and Reduce Taxable Income
There are investments that permit tax rebate. These kinds of investments are defined under section 80C of deductions. The invested sum gets deducted from the taxable income of a person. There are several investments that come under the category of EEE.
This implies that you do not have to pay tax during earning, investment, and redemption. Section 80C offers a limit for maximum deductions. Moreover, this limit has extended to 1.5 lakhs after the budget of 2014.
|You may like to Read: How to e filing income tax|
Contribution to EPF account
Employee Provident Fund has emerged as a great instrument for savings after retirement. Contribution to the EPF is compulsory if the basic salary of the employees is below Rs 15000/month. The employer contributes equally into their employees EPF account. The contribution made by the employer to its employees EPF account is tax-exempt, wherein the contribution made by the employee himself is tax deductible as per section 80C.
Investments in tax saving mutual funds (Equity Linked Saving Scheme (ELSS))
Equity linked saving scheme offer 3 years of the lock-in period. The scheme invests money in the share market and holds the potential to get god returns.
Deposit in PPF account
PPF account is scheme launched by the government is used for long term. A PPF account can be opened by anyone in a post office, SBI or other banks. Section 80C of the Income Tax Act states that the PPF account renders tax deduction.
Tax Saving Fixed Deposit
Tax saving Fixed deposit is similar to the regular fixed deposit offered by banks. When it comes to finding out the difference we can say that it offers a lock-in period of 5 years. The interest earned from any tax saving FD depends on the tax.
Sukanya Samriddhi Account
Sukanya Samriddhi Account is a scheme for protecting the girl child by the Indian Government. The major attraction of this scheme is that it gives the best returns as compared with all the small saving schemes. The investments get locked and remain so till your girl child reaches the age of 18. The amount of maturity and investment is free of taxes.
National Saving Certificate (NSC)
National Saving Certificate is small saving scheme by a post office. The national saving certificate is issued to the client for about 5 years. The interest rate of this scheme is 8.5% and tax benefits are provided by NSC under section 80C.
Senior Citizen Saving Scheme
Senior Citizen Saving Scheme is a small scheme launched by the Indian government that helps people to save taxes. This scheme is particularly formulated for senior citizens. This scheme provides regular income to the senior citizens. Moreover, the interest rate received from this saving scheme is more than NSC or PPF. If you retired from defense then you can take this scheme irrespective of your age. There are numerous expenses that offer deduction on tax saving.
There are certain expenses that come under the deduction of 1.5 lakhs.
Tax saving benefit is given under section 80C for the Principal part. These expenses and investment that are discussed above in total must be under the limit of 1.5 lakh.