4 Smart Ways To Save Income Tax Legally
Every year, the season of filing taxes brings with it a lot of stress and pressure for most of us. Despite the awareness, many of us are hesitant to pay taxes. Apart from considering it as a financial burden, what adds to this stress is the lack of knowledge in planning these taxes.
Tax planning is really important for you if you are paying big chunks of your income on taxes. If you can relate to this, then worry not. We have got you covered with the best and easiest options for tax saving. In order to save the most part of your income, you need to pay close attention to the most-suitable tax-saving financial instruments. There are multiple ways available through which you can save income tax legally. The Income Tax (IT) Act 1961 of India allows citizens to save taxes through deductions, which can be claimed at the time of filing tax returns.
Here are the 4 smart ways to save income tax legally, with multiple benefits.
- Protection with Health Insurance
Health insurance policies are a must in your investment portfolio, seeing the declining health quality coupled with the rising medical costs in India. Plus, health insurance offers dual benefits – protection during rainy days as well as a deduction in taxes.
The government encourages everyone to buy medical insurance and allows you to claim deductions up to ₹1 Lakh through norms under Section 80D of the Income Tax Act. These exemptions can be availed for all the health insurance policies insuring self, spouse, children, and parents, based on the premiums paid. This benefit can be claimed by individuals and Hindu Undivided Families (HUFs).
2. Undertake investments
Capital investments and investments in government-mandated schemes are great ways to accumulate wealth through higher returns along with tax-saving benefits. Under section 80C of the IT Act, an individual or a HUF is eligible for tax waivers for total investments up to ₹1.5 Lakh. You just need to invest the amount in eligible tax saving instruments like Employees’ Provident Fund (EPF), Public Provident Fund (PPF), Fixed Deposits (FDs), life insurance policies, Equity linked Saving schemes (ELSS), Mutual Funds (MFs), National Pension System (NPS), and other pension plans.
3. Claim deductions
Taxpayers can save tax on personal expenses, including medical bills, tuition fees for themselves and their children, and rentals. Expenses incurred by individuals for medical treatment are exempted from tax calculations under section 80DDB. You can receive tax waivers against medical bills of up to ₹40,000. Parents can claim a deduction on the amount paid as tuition fees for their child’s education (maximum of two children for each individual). Each parent can claim up to ₹1.5 Lakh together with other deductions. Salaried individuals who live in rented houses can also claim House Rent Allowance (HRA) to be deducted from their taxes.
4. Avail Loans
Various sections of the IT Act have provisions that help taxpayers claim tax benefits on repayments for loans ranging from home loans and educational loans to personal loans and car loans. For your first house purchased through a home loan, you are eligible for a deduction of up to ₹50,000 on the interest. You can also claim tax benefits on the repayment of the principal amount on the home loan. You can also save tax by opting for an educational loan for higher studies for yourself or your spouse or children. You can claim a deduction on the amount spent on repaying the interest on the education loan.
These are the most popular ways people use to reduce their total taxable income legally. When you start planning your income, expenses, and investments smartly, you’ll end up saving a lot of money.