Investments are the best way to reduce tax liability substantially and tax payers consider it to be a good way to save tax.
There are many options available to save more and reduce taxes. If an individual has done proper financial & tax planning then deductions would be subtracted from the gross total income and income tax would be levied on the balance income as per the income tax slabs.
Here are some tips to help you save tax on your income:
1. Save via interest payment on loan
If you have a loan such as education loan, home loan, car or personal loan then tax saving becomes easy. The government allows tax benefits for individuals who are repaying loans.
Some investments that you many consider under Section 80C are: Life insurance premium paid towards self, spouse or child, contribution towards statutory provident fund or superannuation fund, contribution towards public provident fund scheme, subscription to units of mutual fund equity linked saving scheme notified by the central government, etc.
It can be a better tax saving option if tax planning by payment of loan is done wisely.
2. Buy a Health Insurance Policy
Premium paid on health insurance policies is allowed as deduction from your total income, according to Section 80D of the Income Tax Act.
Deduction up to Rs 15,000 is available for insurance of self, spouse and dependent children. This is one of the best options and can be part of tax planning.
3. Make a donation
Making a donation is a good way to save tax on your income. Section 80G of the Income Tax Act allows an individual to claim deductions up to a specified limit for contributions made to charitable organizations or NGOs. This option will save taxes as well as bring some virtue.
4. Equity Mutual Funds
Investment in equity mutual funds is a great way to make your profits 100% non-taxable. However, it is advisable not to sell your equity shares before a period of one year as anything less than 12 months may incur tax on profits.
5. Amount received as gifts
Any gifts received on your marriage in the form of cash or cheque are totally tax free. You can receive cash gifts from your relatives or friends for which you don’t have to pay any tax.
6. House Rent Allowance
You can claim House Rent Allowance (HRA) to save tax on your house rent. However, this is applicable only when you are staying in a rented accommodation.
7. Medical Bills
You can keep all the medical receipts of your medical expenses to use them for tax saving at the end of the year.
An amount up to Rs 15000 is non-taxable on medical expenses for yourself and your dependent family members.
8. Telephone/Internet Expenses
You can check with your employer if they have a tax saving policy on telephone or internet expenses. You can either get telephone/internet expenses reimbursed or claim tax benefits for the same.
Income tax planning for small amounts has impact on total taxes. So don’t ignore it.
9. Daily Travel Allowance
You can avail tax benefits up to Rs 1600 per month from your company for conveyance. This will allow you to save tax on Rs 19,200 annually on conveyance allowance. Also, you do not have to submit any invoices or proof to avail the same.
10. Meal Coupons
Meal vouchers or any gift vouchers including Sodexo are not taxable up to Rs 2600 per month. You can ask your employer to either issue you meal coupons every month to claim tax benefits or reimburse the same.
11. Leave Travel Allowance
Leave Travel Allowance (LTA) can be utilized by you for domestic vacations. You will not be taxed on travel expenses for yourself and your dependents.