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4 Easy Ways To Save Tax

Mr. C.S. Sudheer | Updated On Saturday, January 21,2017, 07:19 PM

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4 Easy Ways To Save Tax

 

 

 

"The avoidance of taxes is the only intellectual pursuit that carries any reward." John Keynes hit the nail on the head, when he made this saying. Yes, if you want to avoid paying all your hard earning money in tax, you need to do tax planning.

You are always short of cash. Why pay all your money in taxes, when you have a chance of avoiding paying tax, using tax deductions and exemptions given to you by the Government?

Want to know more on tax planning? Just leave a missed call on IndianMoney.com financial education helpline 02261816111 or just post a request on IndianMoney.com website. IndianMoney.com offers Free, Unbiased and on-call financial advice on Insurance, Mutual Funds, Real Estate, Loans, Bank Accounts and capital markets.

1. Avail health insurance for you/family/parents

You get a tax deduction on the premium you pay for a health insurance plan for yourself + family, up to a maximum of INR 25,000 a year under Section 80D. You can also avail a tax deduction up to INR 30,000 a year, on the health insurance premium you pay for your parents, who are senior citizens. To get this benefit, health insurance premiums cannot be paid in cash.

You can claim a maximum deduction under Section 80D up to INR 55,000 for health insurance premium for you + family + senior citizen parents.

2. Avail a home loan and save tax

You avail a home loan and buy your dream home. The home loan gives you tax benefits. You get a tax deduction up to INR 1.5 Lakhs a year under Section 80C, on the EMI (Principal) of your home loan. You get a tax deduction of INR 2 Lakhs a year, under Section 24 of the income tax act, on the EMI (interest) of your home loan, if your property is self occupied.

Buying your first home? You get a tax deduction of INR 50,000, under Section 80 EE of the income tax act, on the interest you pay for your home loan. The value of the home loan should not be more than INR 35 Lakhs and the market value of the property, not more than INR 50 Lakhs. Your home loan should be sanctioned between 1st April 2016 and 31st March 2017.

3. Make Investments which enjoy EEE benefits

You can invest in tax saving instruments which enjoy the EEE benefits. EEE means exempt, exempt, exempt. The first exempt means your investment is allowed a tax deduction. The second exempt means the returns you get are not taxed during the accumulation phase. The third exempt means income from your investment is tax free at maturity. Public Provident Fund (PPF), Employee Provident Fund (EPF) and Equity Linked Saving Schemes (ELSS) enjoy the EEE benefit.

 

Investment in PPF:

 

The money you invest in a PPF enjoys a tax deduction up to INR 1.5 Lakhs a year, under Section 80C. PPF has a compulsory lock in of 15 years. You cannot touch this money for 15 years, except under certain conditions. The money you withdraw at maturity is tax free. You can read more on PPF here.

Investment in EPF:

 

Employee Provident Fund (EPF) helps you save for retirement. An amount of 12% of your basic salary, is compulsorily deducted by your employer and deposited with the employee provident fund organization (EPFO). Your employer makes an equal contribution to this account. 

Your contribution to the EPF enjoys a deduction up to INR 1.5 Lakhs a year under Section 80C. EPF pays an interest of 8.65% a year. The interest you earn and the amount you withdraw at maturity is tax free. To read more on EPF interest click here.

Investment in ELSS:

 

ELSS is nothing but a type of mutual fund. ELSS invests more than 80% of your money in stocks. You get a tax deduction up to INR 1.5 Lakhs a year, under Section 80C of the income tax act, on the money you invest in the ELSS. Your money invested in ELSS, is locked for 3 years. The money you withdraw at maturity is tax free. Read more on ELSS here.

4.Make your tax declarations in time

If you earn an income above basic tax exemption limits, you are required to file income tax returns. Your employer deducts tax in advance on your salary and pays it on your behalf to the tax department. So, Tax Deducted at source (TDS) is deducted from your salary.

Your employer is not sure of your actual tax liability. So, TDS is deducted according to your projected tax liability for that financial year. If you don’t declare your tax saving investments and expenses for the year, your employer deducts a higher TDS. If your tax liability is lower than the TDS deducted, you can always file ITR and get a refund. It’s better to give a tax declaration at the beginning of the year, so that your employer does not cut too much in TDS.

Tax evasion is a crime. Tax avoidance is not. Why are you paying extra money in taxes, when you can avoid it with some good tax planning? Be Wise, Get Rich.

 

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Article Author

Mr. C.S. Sudheer

Mr. C S Sudheer is the founder and CEO of IndianMoney.com – India’s largest Financial Education Company. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.

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