Tax season is here: Check effective ways to save money on your hard-earned income

Why to go Tax'ing?

The tax season is upon us, and as responsible citizens, its essential to explore effective ways to save money on our hard-earned income. Understand the various types of taxes imposed in India, including those on property, wealth, and income, is crucial.

Types of taxes in India

In India, taxes are levied on different fronts—property, wealth, and income. Whether youre an individual or a business entity, both your personal and corporate revenue are subject to taxation according to government laws. Also, net worth of assets owned is considered for wealth tax purposes.

Wealth Tax

The net worth of assets, such as properties and investments, is subject to wealth tax. Understanding the implications of wealth tax is vital for effective financial planning and minimising tax liabilities.

Opportunities to save taxes

Income taxpayers are always on the lookout for opportunities to save taxes and reduce their overall tax burden. Thankfully, the Income Tax Act provides several legal methods for individuals and businesses to optimise their tax planning.

Deductions under Section 80C, 80CCC, and 80CCD

One of the most effective ways to reduce tax liability is by claiming deductions under Sections 80C, 80CCC, and 80CCD of the Income Tax Act. Citizens can invest in specified instruments and avail themselves of deductions, offering a substantial opportunity to save up to Rs 1.5 lakh.

Medical Expenses (Section 80D)

Salaried employees can benefit from tax deductions on medical insurance. This includes coverage for spouses, dependent children, and senior citizen parents, allowing claims of up to Rs 50,000. Such deductions promote well-being, ease the financial burden of medical expenses.

Home Loan (Section 24)

Individuals with home loans can make use of deductions on the interest payable. With a cap of Rs 2 lakh, and no upper limit if the property is rented out, this provision encourages home ownership while providing financial relief through tax benefits.

Education Loan (Section 80E)

For those pursuing higher education or supporting someone in their academic endeavours, opting for education loans can yield tax benefits. There is no maximum limit on the deduction for interest payments, making education more financially feasible.

Shares and Mutual Funds (Section 80CCG)

Citizens earning below Rs 12 lakhs annually can enjoy additional deductions by investing in specified shares and mutual funds under the Rajiv Gandhi Equity Savings Scheme. This fosters investment and contributes to the growth of the capital market.

Long Term Capital Gains

Taxpayers can strategically reduce their tax liability by reinvesting the gains from the sale of long-term assets in specific instruments. This defers the tax impact and aligns with long-term financial goals.

Sale of Equity Shares

To boost investment in the equity market, the government exempts tax on long-term gains from equity shares, provided they are held for more than one year.

Donations (Section 80G and 80GGC)

By claiming deductions up to 50 percent of the donated amount and 10 percent of adjusted total income, individuals can support causes they believe in while optimising their tax planning.

House Rent Allowance (Section 80GG)

Employees who dont receive HRA from their employers can still claim House Rent Allowance under Section 80GG. This provision provides relief on taxes if the annual rent exceeds Rs 1 lakh. One needs to furnish necessary documents, landlords PAN card and lease agreement, to avail this benefit.

Leave Travel Allowance (LTA)

Individuals receiving LTA from their employers can make the most of tax-free LTA by travelling within India during leave periods. This provision is applicable twice in four years and covers trips with spouses, children, and parents. It promotes travel and, in a tax-efficient way.