As wage earners in India, we pay taxes based on our earnings and expenses. The taxes applied to our spending are known as ‘indirect taxes,’ whereas the taxes applied to our income are known as ‘direct taxes,’ often known as Income Tax. In addition to submitting last year’s forms, it is also critical to begin tax preparation for the current fiscal year.
This is recommended since smart planning will allow you to save a significant amount of money. Many of us still believe that taxes are tough to avoid, so we don’t prepare for them or try to save for them. However, a number of investments can help you reduce the amount paid in taxes or even completely wipe it out. Here are five easy ways you can reduce your tax liability:
- Maximize Savings through Section 80C
Section 80C is the tax planning holy grail. It enables you to deduct up to Rs.1.5 lakhs from your taxable income. This deduction may be claimed by investing in qualified channels like life insurance, ELSS schemes, PPF, EPF, National Saving Certificate, Sukanya Samriddhi Yojana, SCSS, and so on. You can also increase your insurance coverage and receive the 80C bonus. For this, you can choose between term insurance and a standard endowment plan.
Furthermore, costs for children’s schooling, house loan repayments, property registration, and stamp duty are also allowable deductions. So, make sure you claim all qualified costs and investments authorised under the clause and claim a Rs.1.5 lakh reduction from your taxable income.
- Invest in a Health Insurance Plan
In this day and age, when medical expenditures are skyrocketing, having health insurance is an essential. According to a Max Bupa poll, whereas just 10% of participants believed in the necessity for health insurance before COVID, that figure increased to 71% post-COVID. A health insurance plan covers your medical expenses while also helping you save money on taxes. Section 80D allows you to deduct the premium paid for the coverage from your taxable income.
You can claim a deduction of up to Rs.25,000 if you are under the age of 60, or Rs.50,000 if you are between the ages of 60 and 60.
Furthermore, if you invest in a plan for your parents, you may claim an extra Rs.25,000 deduction if your parents are under the age of 60 or Rs.50,000 if they are senior citizens. So if you take a health plan, you can claim a deduction of up to Rs.1 Lakh and save up to Rs.30,000 in taxes.
- Become a Homeowner
According to a House Credit survey, 67 percent of Indians are interested in obtaining a home loan. The loan not only assists you in financing your dream house, but it also provides the following tax advantages:
- The principal repayment of the loan is deductible under Section 80C up to Rs.1.5 lakhs.
- Section 24(b) allows an exemption for interest paid up to Rs.2 lakh.
- If you invest in an affordable housing programme with a stamp duty value of up to Rs.45 lakhs, you can claim an extra deduction of up to Rs.1.5 lakhs under Section 80EEA to generate an asset while also saving tax.
- Plan for Your Retirement
Finally, retirement planning can help you save money on taxes. If you invest in the NPS system, you can claim an extra Rs.50,000 deduction under Section 80CCD (1B). Thus, the NPS program can help you accumulate a retirement corpus for a financially secure retirement while also providing tax benefits.
- Nullify Your Tax Liability through Section 87A
Section 87A is a wizard’s wand. If your taxable income is up to Rs.5 lakh, you are eligible for a tax relief. The rebate is equal to the actual tax payable, whichever is less. Even if your tax due exceeds Rs.5 lakhs, you can decrease it to Rs.5 lakhs by claiming tax advantages under Sections 80C, 80D, 80CCD (1b), and other applicable sections. After then, take advantage of the Section 87A refund to pay no tax. It is as simple as that.
Investing your money in the above-mentioned schemes can reduce your total taxable income every financial year, but make sure you submit the income tax return form and Form 16 provided by your employer to avail the tax -exemption benefits.