How to Save my taxable income?
Everyone wants to save more, and create a financially stable future that covers every expense even without a regular source of income. Rightly so, savings are fundamental to the success of any financial plan. However, paying income tax on your total taxable income, can reduce your savings and leave you with less money to plan your future.
What if you could create more wealth to secure your future simply by reducing your taxable income? Here are some ways for taxable income reduction.
What are the various investments that can be claimed as tax deductions?
TIPS FOR SAVING MONEY ON TAX
1.Invest in products applicable under section 80C.
The below-mentioned investments/payments reduce your taxable income by Rs 1.5 lakh.
PPF (Public Provident Fund)
Tax Saving FDs
ELSS (Equity Linked Savings Scheme)
NSC (National Saving Certificate)
Life Insurance Premium
NPS (National Pension Scheme)
Home Loan Repayment
Payment of tuition fees
PDF (Employee Provident Fund)
Senior Citizens Savings Scheme
Sukanya Samriddhi Yojana
ULIP (Unit Linked Insurance Plans)
Tax Saving Mutual Funds
Child’s tuition fee amount
2.Medical Expenses
Under Section 80D, a salaried employee can claim tax deduction against medical insurance. An individual can claim Rs.25,000 against medical insurance taken to cover spouse and dependent children and another Rs.25,000 for parents. An individual can claim up to Rs.50,000 against medical insurance that is taken to cover their parents who are senior citizens.
3.Home Loan
A tax deduction can be claimed on the interest payable on house loan under Section 24 of Income Tax Act. A tax deduction can be claimed up to Rs.2 lakh but there is no upper limit in case the house is given out for rent.
4.Education Loan
People can save tax by opting for an education loan for higher education for themselves or their children or spouse, etc. Section 80E of the Income Tax Act allows people to claim deduction on the amount they have spent for paying the loan interest. There is no maximum limit on the amount of deductions they can claim.
5.Contribute to charity
Donating to charities verified by the government can help you claim tax deductions between 50%-100% of the contributed amount and up to 10% of your adjusted total income under section 80G. If the donation has been towards scientific research or rural development, you can claim a tax deduction under section 80GGA.
6.Sale of Equity Shares
In order to motivate people to invest in equity shares and mutual funds, the Indian Government has exempted tax on any long term gains that people earn through the sale of equity shares. The tax is exempted only if people hold such shares for more than 1 year
7.Long Term Capital Gains
Taxpayers can save money on tax through long term capital gains, provided they receive this gain amount by selling any long-term capital asset and then investing it in specific instruments. A long-term capital asset would be any asset that the taxpayer has owned for over a period of 3 years.
8.LTA (Leave Travel Allowance)
If taxpayers get LTA from their employers, then they will be entitled to tax-free LTA. People can claim it 2 times in a period of 4 years. To claim it, they have to travel anywhere within India during their leave period and the trip can take with spouse, children, and parents.
9.What salary amount places you in a higher tax bracket?
Tax brackets are defined by the Income-tax slabs mentioned above. However, your salary alone does not constitute your total income. The Income Tax Act, 1961 has defined income as the total of all the earnings from these five income heads:
Income from Salary.
Income from House Property.
Income from Profits and Gains of Profession or Business.
Income from Capital Gains.
Income from Other Sources.
You must add your salary, along with the earnings from these sources, to constitute your total income. Furthermore, if you have invested in any of the taxable income reduction investments specified earlier in this article, you must subtract the claimed tax deductions from your total income to identify your total taxable income. The final amount will determine your tax bracket against the prescribed tax slabs.