It’s the tax season and time to file income tax returns. You must avail income tax exemptions and tax deductions to save tax. The season from January to March 2019, is the time when taxes gain importance over everything else.
This is the time the HR Department asks for proof of investment to save taxes. You have to submit rent receipts, medical bills, proof of investments in PPF, NSC, 5 year Tax Saver FD, NPS and so on. Premium receipts in health and life insurance and home loan statement must be submitted. To save taxes, start your tax planning right now.
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Calculate Tax Liability Properly:
Before looking to invest to save taxes, get to know total taxable income. This gives an idea of tax liability. Your gross total income may not be the same as taxable income.
Gross total income is the sum of income received from these 5 heads:
To calculate total income, subtract eligible tax exemptions and deductions before calculating tax payable. Apply tax rates for the financial year to compute tax liability. The next step is where to invest?
SEE ALSO: How to Calculate the Tax Liability for the Payroll
Best Tax Saving Investment
You enjoy tax deductions under Section 80C up to Rs 1.5 Lakhs a year on certain eligible investments. This is a collective deduction up to a maximum Rs 1.5 Lakhs a year. Investments in PPF, EPF, ELSS, Sukanya Samriddhi Scheme, NSC, NPS, 5 Year Tax FD are popular investments enjoying Section 80C deductions. Premium on life insurance plan, repayment of home loan principal (EMI Principal component on home loan) and Tuition fees paid for up to 2 children per individual are eligible for Section 80C deductions.
5 Ways to Boost Tax Refund:
Invest an amount as low as Rs 500 a year in PPF and a maximum of Rs 1.5 Lakhs to save tax. PPF has a lock-in of 15 years. PPF currently offers interest rate of 8% from January 1st 2019. Interest rates are revised each quarter. PPF enjoys EEE benefits where money invested enjoys a tax benefit up to Rs 1.5 Lakhs a year under Section 80C. Interest earned and money withdrawn at maturity is tax free.
Your contribution to EPF enjoys tax deduction under Section 80C. EPF also enjoys EEE benefit. The money invested up to Rs 1.5 Lakhs, interest and amount withdrawn at maturity is tax free.
Avail a home loan to enjoy tax deduction. You get a tax deduction up to Rs 1.5 Lakhs a year on EMI home loan principal under Section 80C. You also enjoy a tax deduction on EMI home loan interest up to Rs 2 Lakhs a year under Section 24. You also get an additional deduction on home loan interest for first-time home buyers up to Rs 50,000 a year under Section 80EE.
Staying in a rented house and House Rent Allowance (HRA) is part of the salary package? You can claim tax deduction against rent paid.
The actual HRA entitled to get tax exemption will be the least of the following.
You get this deduction on health insurance premiums paid for self + family, up to Rs 25,000 a year. (This is for yourself + spouse + dependent children). If parents are senior citizens (above 60 years), you get tax deduction up to Rs 50,000 a year on premiums paid towards their health insurance plans.
You can avail a maximum deduction up to Rs 75,000 a year under Section 80D for health insurance premiums paid for self + spouse+ dependent children + senior citizen parents.
The pre-tax return is the gain or loss on investments before taxes. The after-tax return is the gain or loss on investments after taxes.
You have EEE investments where the amount invested enjoys tax benefits. The returns/interest and the amount withdrawn at maturity enjoy tax benefits. PPF, VPF and EPF enjoy EEE benefits.
You have the EET regime where investments and accumulation are exempted from tax. The maturity amounts and withdrawals are taxed in the hands of investors. NPS comes under the EET regime.
You have the ETE regime where the amount invested (principal) is tax free. The amount at maturity is tax free. Only the interest is taxed. 5 year tax saver FD is a prime example of the ETE regime.
Submit Income Tax Proofs:
The salary you earn is subject to tax deducted at source (TDS). At the beginning of the financial year, the accounts department calculates tax on salary based on estimated taxable income. If you have made tax saving investments, furnish documentary evidence to the employer. Now, the accounts department deducts TDS only on estimated income minus deductions.
Submit ELSS fund statement, life and health insurance premium receipts, PPF passbook, deposit receipt and certificate for Sukanya Samriddhi Scheme and fixed deposit, Submit photocopies of school receipts for proof of tuition fees and home loan statements from banks.
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