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Smart Ways To Reduce Your Taxable Income

IndianMoney.com Research Team | Posted On Friday, August 17,2018, 03:43 PM

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Smart Ways To Reduce Your Taxable Income

 

 

 

If you don’t plan taxes well, be ready to pay more. To plan taxes, you have to know certain income tax laws, provisions and Sections. Saving taxes isn’t difficult. There are two types of taxpayers:

 

  • Those who do tax planning and save tax.
  • Those who don’t do tax planning and pay more in tax.

 

Want to know more on Tax Planning? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice/education to ensure that you are not misguided while buying any kind of financial products.

 

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Smart Ways to Reduce Your Taxable Income

If you wish to reduce your tax liability, then you should go through these points:

 

1. Tuition fees:

 

You spend a lot on children’s education. The Income Tax Act, 1961, rewards taxpayers by allowing them to claim tuition fees up to 2 children, as a tax deduction under Section 80C.

 

2. Rent paid (without HRA):

 

What if you don’t get HRA in salary? If you pay rent towards your own accommodation and you/spouse/ minor child or the HUF (of which you are a member) don’t own a residential property, you can still claim such rent as a tax deduction under Section 80GG of the Income Tax Act.

 

3. Home Loan Repayment:

 

The interest portion of Home Loan EMIs up to Rs 2 Lakhs a year, can be claimed as a tax deduction under Section 24b.

The principal component of Home Loan EMIs up to Rs 1.5 Lakhs a year can be claimed as a tax deduction under Section 80C of the income tax act.

First time home buyers get an additional tax deduction of up to Rs 50,000 a year under Section 80EE for interest paid on Home Loan.

 

4. Education Loan Repayment:

 

Interest paid on an Education Loan for self/spouse/children also offers tax benefits. The interest can be claimed as a tax deduction under Section 80E with no maximum limit.

 

SEE ALSO:  Joint vs Individual Term Insurance: Which Is Better?

 

5. Pension Funds:

 

Section 80CCC gives tax benefits if a taxpayer invests in an annuity plan for pension purposes from a fund referred to in Section 10 -23aab. However, the proceeds of these annuity plans are taxable in the year of receipt.

 

6. Health Insurance:

 

Payment of health insurance premiums (which are not in cash), can be claimed as a deduction under Section 80D. Amount of tax deduction is:

  • Rs 25,000 for premiums paid for self, spouse and dependent children.
  • Rs 50,000 if you or your spouse is a senior citizen and/or if you pay premiums for senior citizen parents.
  • An additional Rs 5,000, for preventive health care.

 

7. Medical expenses of a disabled family member:

 

Section 80DD allows you to claim Rs 75,000 a year in special cases where expenses are incurred for medical treatment of dependents like spouse, children, parents, brothers and sisters with disabilities. This deduction goes up to Rs 1,25,000 a year in case of severe disability of more than 80%.

 

8. Medical expenses spent on yourself:

 

If you are suffering from a disability which is more than 40%, you get a deduction under Section 80U up to Rs 75,000 a year.  In case of severe disability, this deduction is Rs 1,25,000 a year.

 

SEE ALSO: How To Calculate Income Tax For Salaried Person?

 

9. Treatment of specified diseases:

 

Section 80DDB allows resident taxpayers to claim a deduction for expenses incurred up to Rs 40,000 a year on medical treatment for specified diseases on self or dependents who can be parents, siblings, spouse, children  (Rs 60,000 a year for senior citizen dependents and Rs 80,000  a year for super senior citizen dependents).

 

10. Charitable donations:

 

Any charitable donations made to institutions prescribed in Section 80G are eligible for tax deductions. Some donations qualify for 100% tax deductions and some others for 50% of the donated amount.

Cash donations beyond Rs 2,000 are not eligible for these deductions. Therefore, make donations above Rs 2,000 in a mode other than cash.

 

11. Donations made for scientific research or rural development:

 

Section 80GGA of the Income Tax Act, 1961, offers tax benefits for donations made towards scientific research or rural development.

All taxpayers except those who have income or loss from business and profession can claim this tax benefit. Cash donations in excess of Rs 10,000 are not allowed as a tax deduction.

 

12. Donations made to Political Parties:

 

100% of the donations made to political parties (in modes other than cash) are eligible for tax deductions subject to conditions under section 80GGC.

 

13. Gratuity tax benefits:

 

Gratuity received by government employees is completely tax-free. In case of non-government employees, gratuity received by the employee or that received by the widow of the deceased employee, children or dependents is exempt up to Rs 10 Lakhs subject to certain conditions.

 

14. Meal Coupons:

 

Meal coupons like Sodexho provided by employers are exempt up to Rs 2,600 a month.

 

15. Voluntary Retirement Scheme:

 

Money received by government employees opting for the Voluntary Retirement Scheme (VRS) is exempt up to Rs 5 Lakhs.

 

16. Distribution of partnership profit to partners:

 

If the profits of a partnership firm are distributed among partners, they need not pay any taxes. This is because the partnership firm has already paid taxes.

 

17. Capital Gain set-off:

 

Any capital gains made on investments can be set-off against capital losses. Capital losses can be carried forward for up to 8 years.

Capital losses can only be set-off against capital gains and not any other income.

Long-term capital losses can only be set off against long-term capital gains.

 

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