How to optimise your yearly tax?
Vaibhav Kumar
Senior Data Engineer at Expedia | Open Source Contributor to LakeFS | Data architecture consultant
If you are in doubts whether you have correctly claimed all deductions, this article may be of lot of help for you.
1. Choosing the right tax regime
If you are earning more than 15 lakh per annum it is highly advisable to go for the old tax regime. There is a thumb rule if you claim more than 2 lakhs in deductions, don't go for new tax regime
2.Claim all the deductions (80C,80CCD,HRA, Health insurance etc)
Understand how much you still need to invest under each section. Many taxpayers are not aware of whether they have used the full limit or not. Eg if you are contributing 20k already to PF then you can use the rest 130k for other things like home loan,ELSS etc under 80C
3. Redemption and Reinvestment
If any equity investment has completed more than a year, try to redeem some units and reinvest the same again. We get an exemption of upto 1 lakh on capital gains.
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4. Tax gain/loss harvesting
Book your losses against all your profits(STCG/LTCG). We get taxed at 15% for STCG so it is better to minimize the net P&L, so that we get taxed less. Below is an example of couple of stocks bought within one year and if you want to redeem your units.
5. Don't sell debt funds, wait for next year
Stock up on debt funds or non equity schemes(Property) before the financial year ends. If the holding period is more than years we get indexation benefits which eventually lowers our capital gain tax.
Indexation refers to recalculating the purchase price, after adjusting for inflation index, as published by the Income-Tax authorities. Since the purchase price is adjusted for inflation, the capital gain gets reduced. In case of LTCG for non-equity funds, investors can avail the indexation benefit.
If you want to read more about it please follow the below link:
Conclusion
It is best to plan the above things throughout the whole year rather than just doing it on the last month of Assessment year.
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