1. Defer income:
Deferring income is a good strategy to save tax. Deferring income means postponing your income to a future time. By deferring your income, you can claim deductions now, when tax rates are higher. These investments would mature in the future, when rates might be lower. So, you will gain today as well as in the future. Also, chances are:
- New tax deductions may be introduced in the future.
- Deduction limits under different Sections might be increased. Example: Section 80C has a limit of Rs 1,50,000 a year. The deduction limit might be increased in the future Union Budgets.
- Standard Deduction was reintroduced in Union Budget 2018-2019. It might be increased in the coming years.
You may defer bonuses, income earned from a consultancy or freelance income, by investing this income in tax saving instruments like ELSS, NSC, PPF, and so on.
2. Pay off expenses on time:
Pay off your expenses on time. This allows you to claim tax deductions and also save tax. Remember to record all the expenses that you make, so that you do not forget to claim them. Deductions on expenses like insurance premiums can only be claimed in the previous year after the payment is made.
3. Plan your charity:
Yes, charity should be selfless, but that doesn’t mean you cannot avail tax benefits on charitable activities. If you think your taxable income is simply too much, plan to give some in charity. Then, claim a deduction on the same and save tax!
4.Make it a continuous process:
Tax planning should not be a one-time activity. You have a whole year to plan your expenses, investments and taxes. Therefore, keep monitoring your finances and tax planning strategies. If you find some aspects of your tax planning are going out of hand, you have time to fix the issue well in advance, rather than pay a fortune in tax or penalties.
5.Life Insurance Plans:
Avail Life Insurance Plans to save tax. They have dual benefits; you save tax in the form of premium payments and your life is insured. Be sure to buy a life insurance plan that suits your needs. Both life insurance plans (term or endowment), enjoy tax deductions up to Rs 1.5 Lakhs a year under Section 80C, on the premiums paid.
6.Invest in tax saving instruments:
You may invest in PPF, ELSS, NSC, 5 year Tax saver FDs and other tax saving investments to save tax. If you have a girl child, you open a Sukanya Samriddhi Yojana (SSY) Account in her name and make regular contributions to save tax.