Did you know that the average Indian taxpayer pays around 30% of the income as taxes? That’s a significant chunk of your hard-earned money going to the government. However, there are legal ways to reduce your tax liability and save money on taxes. That’s where tax planning comes into the picture. Tax planning can be a daunting task, but with the right approach, you can significantly reduce your tax burden.
Did you know that you can claim a deduction on the interest paid on your home loan, education loan, and even the rent you pay for your accommodation?
Here we discuss 10 Tax Planning aspects to save money on your taxes in India. Read On!
1. Invest in Tax-Saving Instruments:
Investing in tax-saving instruments is one of the easiest and most effective ways to reduce your tax liability. The Indian government offers several tax-saving options, such as Public Provident Fund (PPF), National Savings Certificate (NSC), Equity-Linked Savings Scheme (ELSS), and more. These investments not only help you save taxes but also offer attractive returns. You can claim a deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act, 1961 by investing in these tax-saving instruments.
2. Claim Medical Insurance Premiums:
You can also claim a deduction on the medical insurance premiums paid for yourself and your family members under Section 80D of the Income Tax Act. You can claim a deduction of up to Rs 25,000 for yourself, your spouse, and dependent children, and an additional deduction of up to Rs 25,000 for your parents. If your parents are senior citizens, the deduction limit goes up to Rs 50,000. This deduction can significantly reduce your tax liability.
3. Deduct Home Loan Interest:
If you have taken a home loan, you can claim a deduction on the interest paid under Section 24(b) of the Income Tax Act. You can claim a deduction of up to Rs 2 lakh if the property is self-occupied. If the property is rented out, you can claim a deduction on the entire interest paid.
4. Claim HRA Exemption:
If you are a salaried employee and receive House Rent Allowance (HRA), you can claim an exemption on the HRA received under Section 10(13A) of the Income Tax Act. The exemption is available up to the least of the following three amounts:
- Actual HRA received
- Rent paid minus 10% of the basic salary
- 50% of the basic salary (if you live in a metro city) or 40% of the basic salary (if you live in a non-metro city)
5. Donations to Charity:
Donations made to charitable institutions can also help you save taxes under Section 80G of the Income Tax Act. You can claim a deduction of up to 50% or 100% of the donation amount, depending on the charity’s nature. However, it’s essential to ensure that the charity is registered under Section 80G before making any donations.
6. Claim Professional Tax Deduction:
If you pay professional tax, you can claim a deduction under Section 16(iii) of the Income Tax Act. You can claim the amount paid as professional tax as a deduction from your taxable income. The maximum deduction allowed is up to Rs 2,500 per year.
7. Claim Education Loan Interest Deduction:
If you have taken an education loan for yourself, your spouse, or your children, you can claim a deduction on the interest paid under Section 80E of the Income Tax Act. You can claim a deduction for a maximum of 8 years or until the interest is paid in full, whichever is earlier. There is no limit on the amount of deduction that can be claimed.
8. Claim Depreciation on Assets:
If you are a business owner, you can claim depreciation on assets used for business purposes under Section 32 of the Income Tax Act. Depreciation is the reduction in the value of an asset over time due to wear and tear. By claiming depreciation, you can reduce your taxable income and, consequently, your tax liability.
9. Splitting Income with Spouse:
If your spouse has a lower income than you, you can split your income with them to reduce your overall tax liability. Income splitting is legal under Indian tax laws, and you can do it by investing in the name of your spouse or transferring funds to their account. However, it’s essential to ensure that the income splitting is done genuinely and not for tax evasion purposes.
Reducing your tax liability through legal means can significantly improve your financial well-being. By following these tips, you can save money on taxes and make the most of your hard-earned income.
These tips are brought to you by expert Financial Planners at HappyWise Financial Services, who can help you with personalized tax planning solutions based on your unique financial situation.
By partnering with HappyWise, you can not only save money on taxes but also achieve your long-term financial goals. So, if you’re looking for reliable, trustworthy financial planning advice, connect with HappyWise Financial Services today through Whatsapp and take the first step towards financial freedom.