As a taxpayer, you are entitled to claim tax deductions on certain expenses incurred during the financial year. Tax deductions can help you save a significant amount of money on your income tax liability. However, many taxpayers are unaware of the deductions they are eligible for or how to claim them.
Here is a step-by-step guide on how to claim tax deductions:
1. Understand the Concept of Tax Deductions:
Tax deductions refer to certain expenses that are allowed to be deducted from your total income, which in turn reduces your taxable income. This means that your tax liability will be reduced based on the deductions you are eligible for.
2. Know the Types of Tax Deductions:
In India, tax deductions are broadly classified into two categories – Section 80C deductions and other deductions. Section 80C deductions include investments made in certain schemes such as Public Provident Fund (PPF), National Savings Certificate (NSC), Equity Linked Savings Scheme (ELSS), etc. Other deductions include expenses such as medical insurance premium, education loan interest, donations to charitable institutions, etc.
3. Collect the Necessary Documents:
Before claiming tax deductions, make sure you have all the necessary documents in place. For instance, if you want to claim deduction under Section 80C for investments made in PPF, you will need to produce the PPF account statement. Similarly, if you want to claim deduction for medical insurance premium, you will need to produce the premium receipt.
4. File your Tax Returns:
In order to claim tax deductions, you need to file your income tax returns (ITR) on or before the due date. You can file your ITR online or offline. Make sure you mention all the deductions you are eligible for in your ITR.
5. Claim Deductions under Section 80C:
To claim deductions under Section 80C, you need to invest in certain schemes such as PPF, NSC, ELSS, etc. The maximum deduction allowed under Section 80C is Rs. 1.5 lakh per financial year. Make sure you keep a record of all the investments made and produce the necessary documents while filing your ITR.
6. Claim Other Deductions:
To claim other deductions such as medical insurance premium, education loan interest, donations to charitable institutions, etc., you need to produce the necessary documents while filing your ITR. The amount of deduction allowed varies based on the type of expense incurred.
7. Claim Deductions for Home Loan:
If you have taken a home loan, you are eligible to claim deductions on the principal repayment and interest paid on the loan. The maximum deduction allowed on principal repayment is Rs. 1.5 lakh under Section 80C, while the maximum deduction allowed on interest payment is Rs. 2 lakh under Section 24.
8. Claim Deductions for Rent Paid:
If you are a salaried employee and live in a rented accommodation, you are eligible to claim deductions on the rent paid. The amount of deduction allowed varies based on the city you live in and your salary. Make sure you produce the necessary documents such as the rent receipt, PAN card details of the landlord, etc.
Claiming tax deductions can help you save a significant amount of money on your income tax liability. Make sure you understand the concept of tax deductions, know the types of deductions available, collect the necessary documents, and file your ITR on or before the due date. Claim all the deductions you are eligible for, including those under Section 80C, other deductions, home loan, and rent paid. By following these steps, you can ensure that you maximize your tax savings and reduce your overall tax liability. Don’t forget to consult a tax expert or financial planner if you have any doubts or questions regarding tax deductions.
These tips are brought to you by expert Financial Planners at HappyWise Financial Services.