Trying to show income below the exemption limits is not a new phenomenon in India. According to data released by Finance Minister Arun Jaitley in the 2017-18 budget, only 1.72 lakh Indians showed their income to be more than ₹50 lakhs, which didn’t match the consumption pattern in the country.Everyone tries different ways to save on taxes. Unfortunately, not all methods are legal and many can land the perpetrator in very hot water. On the other hand, the good news is that there are some very effective and completely legal, if not beneficial ways, to save on taxes. After all, paying taxes honestly is the best way to help the government accomplish development projects that can benefit the entire country.
Here are a few tax planning tips that can help you save on income tax, make your contribution to India's economy, and yet still build a strong future for yourself and your loved ones.
4 Ways Salaried Employees Can Save Income Tax
1.Make Full Use of Section 80C:
Section 80C consists of a long list of expenses and investments that are eligible for tax deductions, including Mediclaim. Under Section 80C, a taxpayer can claim a maximum deduction of ₹1.5 lakhs from their total taxable income in a given fiscal year in which the investment/expenditure was made. Make sure you have complete knowledge about the terms and conditions to lower the tax payout from your salary legally. If taken advantage of properly, Section 80C can become the best option for tax saving for salaried individuals.
2.Focus on Investments, Not Tax Saving:
As a rule of thumb, do not take any steps only with the aim of saving tax. Instead, focus on making investments and choosing funds that can give you and your family member long-term benefits. A few examples of such investments are Life insurance, EPFs (Employee Provident Funds), children’s plans, mutual funds, ELSS (equity linked saving schemes) and ULIPs (Unit-Linked Insurance Plans).
3.Consider Taking Home Loans:
Under Section 80C of the Income Tax Act, up to ₹1.5 lakhs can be exempted from tax deduction from the amount a homeowner repays towards their home loan. Under Section 24, one can also claim tax benefits on the interest paid on home loans.
4.Spread your Income Tax Rebate:
To claim for income tax exemption, you can show a maximum of ₹1, 50,000 as investments or expenditure. However, do not invest this money in a single instrument. Instead, select different investment tools, such as PPFs (Public Provident Fund), insurance plans, mutual funds (tax paying), National Savings Certificates (NSCs), insurance plans, etc., to invest your money. Make sure you consider your income levels, financial goals, and risk appetite to choose an investment tool.
In addition, medical bills, rent receipts, conveyance bills, travel bills, education loans, health insurance premiums or Mediclaim receipts can also be used for tax savings under Section 80C. You can also take the help of a tax calculator to plan your investments and expenditure to reduce the amount of tax you need to pay. To get maximum benefit, make sure you start your income tax saving planning when the fiscal year starts (April).