9 income tax saving tips that also help financial fitness - Business2Business

Here's a look at 9 ways one can save on income taxes and improve overall financial fitness.

1. Invest in tax saving tools

To encourage saving by citizens, the government has introduced certain tax deductions on the amounts invested in specific instruments under Section 80C of the Income Tax Act of 1961. Some of the specific investment instruments to the purposes of tax planning are:

Provident Fund for Employees (EPF)

Public Provident Fund (PPF)

Fixed deposits (for 5 years or more)

life insurance policies

ELSS mutual funds

The National Pension System (NPS) and other retirement plans

Investing wisely in these instruments can serve the dual purpose of achieving financial goals and tax savings (up to an investment limit of Rs 1.5 lakhs per fiscal year) at the same time. However, the tax savings will only be available if the person chooses the old tax system. If you opt for the new tax system, which offers concessional tax rates.

2. Choose the correct components in the salary structure offered by the employer

In the case of a salaried person, the person can evaluate the salary structure offered by the employer and choose the salary components that help maximize tax benefits. For example, one can opt for a housing rental subsidy (HRA) in case of paying rent, reimbursement of telephone/internet expenses, education subsidy, food stamps, etc. Consequently, appropriate deductions/exemptions can be claimed when calculating taxable income (based on specified conditions).

3. Increase the contribution to the pension fund

Salaried persons may consider making an additional contribution to the Voluntary Provident Fund in addition to the EPF if the investment limit of Rs 1.5 is not exhausted. This additional contribution will also be deductible from taxable income according to the terms. In addition, the employer's contribution to the NPS (subject to 10% of salary) will provide an additional discount to the employee.

Please note, however, that the employee's own contribution to EPF and VPF must not exceed Rs 2.5 lakh in a financial year, or else income tax will be paid on increased interest on excessive contributions to the provident fund.

4. Tax advantages of a mortgage loan

If a mortgage loan from a financial institution such as a bank, NBFC, or home finance company is used to acquire/build a home property, the interest and principal paid can be claimed as a deduction from taxable income, subject to limits defined according to tax provisions. However, tax savings can only be claimed if the old tax system is chosen. Please note that the discount on the basic payment amount is subject to the total limit of Rs 1.5 lakh under Section 80c.

5. Self-protection with health insurance

Income tax provisions provide deductions from insurance premiums paid for health insurance for yourself, your spouse, dependent children, and dependent parents. Thus, one can purchase health insurance for himself and his family members to help manage medical expenses in a health emergency and at the same time take advantage of the tax benefits for the premium paid on these policies ( Rs 25,000 for children, spouse, and dependent children; Rs 50,0000 for elderly parents as applicable).

Similarly, if seniors are not covered by any health insurance policy, they can also claim a deduction of up to INR 50,000 for medical expenses incurred during the year.

6. Claim an appropriate deduction for medical expenses, tuition fees, etc.

It is important to note that in certain cases, even if one does not make any additional investment, one can take advantage of tax benefits with regard to certain expenses incurred, such as Rs 5,000 for preventive health checks. However, the deduction for medical examination expenses is subject to the total limit under Section 80d, which includes the medical insurance premiums listed above. Also, parents can claim a tax deduction of up to Rs 1.5 lakh under Section 80C (less than the total limit of Rs 1.5 lakh) for tuition fees paid for their children's education.

7. File tax returns within the specified deadlines

The importance of filing income tax returns and other legal forms (as applicable in the case of an individual) within the established deadlines cannot be stressed enough. The same helps to create a suitable tax record for any inquiry/verification by the tax authorities. Additionally, submitted income tax returns (ITRs) are also required for various purposes such as applying for immigration documents, home loans, accumulated losses, some high-value transactions, etc. Therefore, it is important to file the ITR within the group's deadlines to avoid the implications for benefits/penalties.

8. New tax system with favorable conditions

The government has introduced a new optional simplified personal income tax system from the fiscal year 2020-2021 onwards.

Subject to certain conditions, an individual or HUF will have the option of paying taxes at discounted slab rates that are applicable without certain exceptions and deductions. In view of this, one can compare the tax payable under the current and new tax systems and choose the system that is more advantageous from a tax perspective.

9. Documentation requirements

While it is not necessary to upload documents during the electronic filing of ITR, a sufficient record of the documents of the investments made should be kept, such as PF account statements, ledgers, copies of insurance policies, pension plans, bank statements. , etc. for seamless interaction with Special Authorities.

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