What are the best ways to save our income tax?
Ways to save income tax. The New Year has not come that tax worries start troubling. We all start looking for ways to save tax. Invest money in insurance or do SIP? Take home loan only? In such a situation, correct and complete information is often unavailable. In this article, we are telling that under the Income Tax Act, on what types of Expenses and Investments we can save Maximum Tax by legal or legal means.
According to government rules, tax is reduced in two ways: the first exemptions and the second deductions. Some of your earnings are not considered taxable in the first method, i.e., exemptions. The income you receive under certain items is outside the tax net, like HRA, LTA, transport allowance, etc.
In other ways, i.e., deductions, certain types of expenses of yours allow saving tax. The more money you have invested in these fixed methods, the less will be your taxable income. Like EPF, PPF, ELSS, NSC etc.
But the most significant tax concession is tax-free income. Yes, according to the income tax slab, earning up to a specific limit is outside the purview of tax. At present, this limit is Rs 2.5 lakh.
In this post, we have divided the methods of tax exemption into four categories. This will make it easier for you to understand.
A. Tax-free Earnings
B. Deductions under section 80C
C. Deductions Other Than 80C
D. Tax-Free Allowance
Also read:?How to get the refund of Income Tax?
What are the best ways to save our income tax?
A. What are the best ways to save our income tax: Tax-exempt earnings.
1. Amount deposited by the employer in the EPF account
The portion deposited by you in the PF account is exempted from tax under section 80C. The second part deposited in your name in EPF, which the employer deposits, also comes under the category of Tax Exemption. That is, you do not have to pay tax on this too. This part of the employer should not exceed 12 percent of your basic salary. If more than this, the tax will have to be paid on the remaining amount.
2. Profit on Shares or Equity Mutual Funds
If you have invested money in Shares or Equity Mutual Funds, then the profit received on selling them is entirely tax-free after one year. Because it is calculated under Long Term Capital Gain. There is no tax on long-term capital gains of shares. Not only this, but the dividend received by the shareholders is also tax-free. Because before giving dividends to its shareholders, the company has already paid the Dividend Distribution Tax to the government.
3. Gifts received in marriage
You do not have to pay any tax on gifts received from friends and relatives in marriage. Provided that these gifts should be received around the date you get married. It should not happen that the wedding takes place on March 16 and the gift should be given after six months. Yes, the value of these gifts should not exceed Rs.50,000. If more than this, that gift will also come under the tax net.
4. Interest in Savings Account
There is no tax on interest on your savings account up to Rs 10,000 per annum. If it is more than Rs.10,000, then tax will have to be paid on the additional amount. – Section 80 TTA
5. Interest on NRE Saving and FD Account
If you are an NRI, the interest earned on your NRE (Non-Resident External) account is also fully tax-exempt in India. This includes interest on both Savings accounts and FD (Fix Deposit) accounts. Due to no tax on the amount deposited in the NRE account, TDS is not deducted from it. This facility benefits Indians living in countries like Singapore UAE because loans are available at meager interest rates (2 to 3 percent). Depositing this loan under the NRE account in India gives better interest and does not have to pay tax.
6. Profit received in the form of the partnership firm
If you are a partner in a firm, then your share received as Share of Profit will be free from tax liability. This is because the company has already paid tax on it. Keep in mind here that tax exemption is only on profit, not the salary you get.
Also read:?What is section 80C of the Income Tax Act?
7. Life insurance claim or maturity amount
If you have got Life Insurance, then the amount received on your claim or maturity is fully entitled to tax exemption. The condition is that his premium does not exceed 10 percent of the sum assured. If the premium exceeds this, the tax will be payable on the additional amount. If you have taken an insurance policy for a disabled or critically ill family member, then the premium amount can also be 15 percent of the sum assured.
8. Amount received in VRS.?
If you have taken VRS (Voluntary Retirement), then the amount received by you up to Rs 5 lakh is entitled to tax exemption. However, this facility is only for the employees working in the government or public sector, not for the private company employees.
9. Property received by inheritance or bequest
You do not pay any tax on the property, jewelry, or cash inherited from your parents. Similarly, the property or cash amount received through a will is also considered tax-free income. Yes, the income or interest, etc., you will get from such property, you will have to pay tax according to the tax slab.
10. Agricultural Income
No tax is levied on income from agricultural land. This includes the produce from him the amount received as rent from him. Income received from farming done by making an agricultural form is also entitled to this exemption.
11. Food Expenses In Business
If you are a businessman, you often have to interact with people like customers, vendors, and employees. Often it will cost a lot to feed and feed them. Tax can be saved by presenting these food bills as business expenses.
B. What are the best ways to save our income tax? Tax exemption under section 80C
Under Section 80C of the Income Tax Act, some investments, investments, and expenses are not taxed. The total exemption under section 80C can be taken up to Rs 1.5 lakh only. This limit changes from time to time. What are these investments and expenses? Let us know.
12. Employees’ Provident Fund
Money is deposited in Employee Provident Funds (EPF) on behalf of the company or employer in your name. In this, your share is 12% of the basic salary and the same to the employer. In this, you can take tax exemption on your part under section 80C. Interest on this amount is also exempted from tax under section 80C.
13. VPF | Voluntary Provident Fund (EPF)
If you want, you can deposit more than 12% of your basic salary in EPF. Apart from the mandatory deduction of 12%, whatever you deposit in the EPF account is called a voluntary provident fund (VPF). Tax exemption is also available on this VPF under 80C.
14. Public Provident Fund
Like EPF, there is PPF, i.e., Public Provident Fund, in which you can deposit by opening an account in a bank or post office. You can deposit money regularly in this account. This account remains locked for 15 years from the date of opening. It is necessary to deposit at least 500 rupees every year. The amount deposited in this gets tax exemption under section 80C.
Also read:?Who can open PPF account?
Also read:?What is a PPF Account? How to open it?
15. Life Insurance Premium
Tax exemption is available on the premium of all types of life insurance schemes. It can be a term plan, traditional plan, ULIP, moneyback policy, etc. This discount is not only on your policy. Instead, you can take advantage of Tax Deduction on the insurance premium of the people of your family. You have provided that you are paying their premium yourself.
16. Pension Scheme |Pension Funds
The government also gives tax exemption on the pension scheme. The amount deposited in the National Pension Scheme up to Rs 1.5 lakh annually is eligible for Tax Deduction under Section 80C. Apart from NPS, mutual fund pension schemes are also entitled to Tax Deduction.
17. Equity Linked Savings Scheme ELSS
ELSS is a type of mutual fund; hence it is also called a tax-saving mutual fund. In this, like equity mutual funds, your money is invested in shares. The only difference is that the money deposited in ELSS gets locked for three years.
18. Share of Principal in Home Loan Installment
The part of the principal amount in the installment of the home loan you have taken to build a house is exempted from tax under section 80C. Home loan interest is also exempt, but it comes under section 24, mentioned separately below.
19. Stamp Duty and Registration Charges
The Stamp Duty and Registration Charges you pay for buying a house can be included in the 80C deduction. If you have bought the house with a home loan or from your capital, this tax exemption will be available in both cases.
20. Infrastructure Bonds
Companies related to the infrastructure sector, such as Infrastructure Development Finance Company and India Infrastructure Finance Company, issue infrastructure bonds. These companies pay attractive interest on these bonds. The amount invested on these also comes under the purview of tax exemption under section 80C.
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21. Tax Saving FD
Banks provide Tax Saving FDs of five years to their customers. Your amount deposited in these is exempted from tax under section 80C. Keep in mind here that the exemption is available only on the principal amount and not on its interest.
22. 5 Year Post Office Time Deposit
The amount of FD Post Office Time Deposit (POTD) made in the post office for five years is also under the purview of tax exemption. However, you must pay tax on the interest received on the amount deposited in POTD.
23. Sukanya Samriddhi Account
The account opened under Sukanya Samriddhi Yojana, started by the Central Government, also benefits from Tax Deduction under Section 80C. You can open Sukanya Samriddhi Account in the name of two girls up to 10 years of your age in the post office.
24. National Saving Certificate (NSC)
NSC is also a post office saving scheme. In this, you can buy certificates ranging from Rs 100 to 10,000 for five years. You can get tax exemption under section 80C on the amount deposited on them. Keep in mind the interest on the amount deposited in NSC does not get tax exemption.
If you are more than 60 years of age, you can open an account in a bank or post office under the Senior Citizen Saving Scheme. The amount deposited in this account is eligible for tax exemption under section 80C. VRS, i.e., voluntary retirement after 55 years, and retirees from the army can open this account even before 60 years.
26. Fees for the education of children
The tuition fees you pay on your children’s education also come under the purview of tax saving under section 80C. This exemption is available only on Tuition Fees deposited in the school, college, or institute. There is no discount on other items like intelligent class, development fee, registration fee, etc. This exemption is limited to the study of two children only for full-time courses.
C. What are the best ways to save our income tax? Tax exemption other than section 80C
27. Health Insurance | Health Insurance
If you have taken a Mediclaim policy for yourself, your spouse, and your children, then its premium is also exempted from tax under section 80D. This exemption is available on a premium of up to Rs 20,000 for general citizens and Rs 30000 for senior citizens annually.
28. Treatment of those suffering from a severe illness
If a family member suffers from a serious illness, he can get a tax exemption on the expenditure up to Rs.40,000 for his care. This exemption can be availed up to Rs.60,000 if the sick is a Senior Citizen and up to Rs.80,000 in case of a Super Senior Citizen. Diseases like Cancer, AIDS, Dementia, Parkinson’s, Thalassemia, etc., come under this category. (Under section 80 section 80DDB).
29. Care of dependent disabled
If a member of your family is disabled, then the expenses incurred in his care can be used for tax exemption under section 80DD. In the case of the Taxpayer himself being disabled, its benefit can be taken under section 80U. Disabled people also get exemption in their income to a greater extent than the average person. According to the severity or level of disability under section 80U, he can get tax exemption in income up to a maximum of Rs 10 lakh.
Often children collect some money from competition or stage performance based on their talent. Out of such income, you can take advantage of tax exemption up to Rs 1500 by clubbing it in your income as child earnings. On this basis, on opening a savings account in the name of children, the annual deposit amount up to Rs 1500 and the interest earned is tax-free. This facility will be limited to two children only. In this way, you can get an exemption from tax on income of at least Rs 3000 per annum. (section 64(1A))
31. Education loan interest
The interest you pay on the education loan taken for higher studies, i.e., Graduation and Post Graduation level studies, is exempted from tax. This applies to loans taken in any amount. Take an education loan for study anywhere in the country or abroad. You get this exemption. You can also get this exemption for your child, spouse, or adopted child. Even if your income already comes in Taxable Income Slab. The benefit of this exemption can be taken by the borrower of the education loan and his parents paying the loan. (Under section 80E)
32. Educational Scholarship
No tax is levied on scholarships received for study or research. Whether it is from the government or given by a private organization. This exemption is applicable at any level, from school to college.
33. Royalties and Patents
The amount received on royalty and patent is exempted from tax. However, its limit is only up to Rs 3 lakh. The tax will have to be paid according to the tax slab if there is income above this. (Section 80RRB)
Even if you give money in charity or donation to social institutions, political parties, scientific and research institutions, then the amount given by you is eligible for tax exemption. In different cases, you can get this exemption under Section 80G, 80GGA, 80GGC.
35. Home loan interest
According to Section 24 of Income Tax, you also get an exemption in interest paid on a home loan. You can take advantage of tax exemption on the amount left after deducting the income from house property from the interest on the home loan. This home loan can be of any type for construction, repair, purchase, and up-gradation. This exemption will be available only up to a maximum amount of two lakh rupees per annum. This provision has also been made in the IT Act under section 80 EE (included in the budget 2013).
36. Amount received as gratuity
If you have completed five years of service, then the gratuity received on leaving the job is entitled to income tax exemption. In the event of the Employee’s death, your wife, child, or another dependent can also get this exemption with certain conditions. This exemption will be available only on up to Rs 20 lakh and only if there is gratuity as per the rules.
37. Adjusting the loss on capital gains
The profit you make in selling any property, stock, etc., is called Capital Gain. Sometimes there is a loss in it, called Capital Loss. The loss which occurs from the shares sold within a year is called a short-term capital loss. Tax can be saved by setting off the short-term capital loss from any stock with other short-term capital gains. If you cannot show it in the current financial year, you can adjust it anytime for the next eight financial years. Keep in mind here that Short Term Capital Loss can be adjusted from Short Term Capital Gain only. Similarly, Long Term Capital Loss is adjusted with Long Term Capital Gain.
D. Tax-exempt allowances and expenses related to salary
38. HRA or House Rent Allowance
If you live in a rented house, then the HRA or House Rent Allowance you get from the company is also eligible for tax exemption. It can range from 40 to 50 percent of the basic salary according to the city of your residence. Three conditions are compared for tax exemption. The amount received as HRA is 40 percent of your salary, minus 10 percent of your rent paid. You can take the tax exemption on the amount which will be the least among the three.
39. Mobile and Internet Bill
You can claim tax exemption for the entire amount you get from the company for telephone, mobile, internet, etc., as a medium of communication and information during the job. Only your postpaid bill showing these expenses will be valid for this discount.
40. Medical reimbursement
The Medical Reimbursement received by the company for the cost of medicines and treatment on you and your family members are also fully eligible for tax exemption. The limit of this is only up to Rs 15000 per annum. You will also have to present the appropriate bill to the company’s HR department.
Also read:?What is new education policy?
41. LTA (Travel Expense Allowance)
The LTA Leave Travel Allowance you get from the company is also fully covered under tax exemption. This is an allowance on behalf of the company to its Employee and his family to go somewhere during the holidays. This allowance can be available only for tours twice in four years. You will also have to present the receipts of which. Keep in mind that the company pays only for your traveling under this item, i.e., ticket, not the cost of food, accommodation, etc., during the tour.
If you a government or public employee, you can take advantage of tax exemption on entertainment allowance. One-fifth of your salary, your total expenditure on entertainment or Rs. 5 thousand, whichever is the least of these three things, you get this tax exemption.
43. Transport Allowance
The transport allowance that you get from the company for coming from your residence to the office or workplace and going from the workplace to the residence is also eligible for tax exemption. This exemption is available on the amount mentioned in your salary, which cannot exceed Rs 1600 per month or ? 19,200.
44. Traffic Expenses
Apart from transport allowance, the expense of commuting for office-related work comes under this item. The entire amount received in this item comes under tax exemption. It also has no maximum limit.
45. Allowance on education and hostel expenses of children
If the employer gives you an allowance for your children’s study, it will also be considered exempt from tax. However, its limit is 100 rupees per child and up to two children. Also, if allowance is being given for hostel expenses, then tax exemption will be given. The limit for tax-deductible expenditure on this is Rs 300 per month, which will be available only for two children. Tax will be deducted on the extra amount in case of excess expenditure.
Note:?Apart from the allowances mentioned above, some other allowances may also be added to your salary. They do not get tax exemption.
What are the best ways to save our income tax?
So you have seen so many tax exemptions. You may have missed out on claiming some of this tax exemption, or you have not told the employer, and he has deducted more tax. Don’t worry if this has happened, as you will get one more chance to claim that tax exemption. You can also include that tax exemption while filing an income tax return. Your excess tax will be received as a refund.