People are always looking for ways to pay less taxes and they look for all possible ways – like getting in touch with the best tax consultants, hiring the best CA firm, or getting the information available on the internet.
Actually, no one wants to miss out on the opportunities to save money on taxes. Some people have different preferences when it comes to saving tax. They sometimes adhere to the tactics they are familiar with, and as a result, they miss out on more fruitful tax saving opportunities.
In this article we have covered the top 10 ways to save taxes but before let’s understand what is income tax?
Income tax is a portion of your income that you pay to the government. This tax is collected on an annual basis. This money is used by the government to carry out administrative activities.
Directions to save tax in India:
- By claiming expenses
To save money on income taxes, you will have to claim the expenses you have incurred.
- Investing in tax-exempt securities
The government encourages consumers to save money on taxes by investing in tax-saving schemes and that are listed under various sections of The Income Tax Act, 1961 such as section 80C, section 80CCD, 80G etc. These schemes encourage the income tax payers to also develop the habit of saving along with the fact that it gives benefit in saving taxes. This manner, you can assure that you have some type of investment while also avoiding spending too much money on taxes.
10 ways to save tax legally in India:
There are several ways to save money on taxes as listed below. They are divided into three categories and differentiated for salaried employees and business owners. Read the following ideas if you want to know how to save income tax and other taxes in India besides 80C. Note that based on annual revisions, there may be minor deviations in these points.
1. Income from agriculture:
Any income derived from agricultural land, as defined in section 10(1),is tax free. Rent from land,revenue from land, the amount earned through agriculture products, and the amount generated through a farm building are all examples of such income. Earning income through these modes would we 100 percent tax-free income.
2. HUF and extra income:
If you have a secondary income in addition to your primary salary, you can save money by reducing the amount of tax you pay on that income. Money obtained via freelancing, for example, will be considered a secondary source of income. For the secondary income, you can open a separate HUF account and route your income from the HUF as HUF is a separate person in the eyes of The Income tax laws and an additional benefit could be availed of the basic exemption and you can save your taxes on an income of upto Rs. 5 Lakhs.
3. Provisions under section 80C:
The government of India offers a facility to invest Rs. 1,50,000 under section 80C of the income tax act in order to encourage savings. As a result, investing in tax saving choices under section 80C allows you to save money on income taxes while also making investments for the future. Here’s a rundown of some of the most popular tax saving investing options under section 80C.
- Public provident fund
- National pension scheme
- Premium paid for life insurance policy
- National savings certificate
- Equity linked savings scheme
- Home loan’s principal amount
- Fixed deposit for a duration of five years
- Sukanya Samariddhi account
- Children’s tuition fees
4. Amount received as per voluntary retirement scheme:
Many people choose for voluntary retirement and receive a fixed sum. The money received through the voluntary retirement scheme is tax free up to a ceiling of Rs. 5 lakhs.
5. When HRA is not a part of salary:
The tax benefit can be obtained in the following ways if HRA is not included in the salary:
- Deducting rent from 10% of Total Income
- A monthly flat charge of Rs 5000
- 1/4th of total income
These deductions are a part of section 80GG
6. When HRA is a part of salary:
To use this service, you must live in a rental premises and have the necessary receipts to prove the genuineness. It’s covered by section 10(13A) of The Income Tax Act,1961.
7. Distribution of profit in partnership firm
When a partnership firm makes a profit and the business owners opt to split the profit among themselves, no tax is deducted from the partners and the share of profit is exempt in the hands of the Partners
8. Money spent on donation to political party
Tax deductions for money spent on donating to political parties have no maximum limit. Section 80GGC allows for such deductions, with a donation amount equaling a 100% deduction.
9. Expenses for treating specific diseases
Section 80DDB allows for this deduction. Expenses incurred to treat specified conditions such as dementia, cancer, and HIV/AIDS are eligible for tax benefits. Tax deductions of up to Rs. 40000 are available for such diseases. The sum doubles to Rs. 1 Lakh if the expenses are for a dependent older citizen.
10. Amount from provident funds
The interest earned on the provident funds is tax free. You must wait 5 years before withdrawing money from your provident fund.
These are some of the small tips to save on taxes but I am sure if you would like to save even more book a free call with our tax expert at Chhota CFO, Bangalore – where they will guide you each and every ways to save money on taxes.
Case study – 1
Mr. Sinha has saved Rs. 63,56,890/-on his annual tax filing with the help of Chhota CFO.