Income Tax Saving Tips for Salaried & Non-salaried Taxpayers

Income Tax Saving Tips:

Equity-Linked Saving Schemes

Equity Linked Savings Schemes (ELSS) are diversified mutual funds. Under Section 80c, one can get a tax benefit of up to Rs 1.5 lakh annually. You can get your return in two ways: either in dividend (if you are looking for regular income) or a growth option (if you want a long-term savings plan).

ELSS is an equity-oriented scheme with a funding allocation of 65% in equity. Dividends in this system are not subject to tax. This makes it tax-free for both dividend-paying investors and long-term investors. However, it is recommended to diversify your investments across several ELSSs to mitigate risks because their returns depend on market performance.

Long-Term Capital Gains from Sale of Long-term assets

These are long-term capital gains that are earned from the sale of long-term capital assets. It is the sale of shares or mutual funds linked to shares that have been taxed on the transactions sold. It is considered a long-term asset if the taxpayer has owned it for 3 years or more. Any gain from the sale of this asset was tax-exempt under Section 10 (38). However, according to the new budget, starting April 1, 2018, taxes will be applied to long-term capital gains.

But it is not all bad news, existing investors have exemption from realized capital gains till January 31, 2018. For example, you bought a share in 2017 and sold it in July 2018 at Rs 120. If the value of your shares is Rs 110 on January 31, 2018, out of your capital gains INR 20, you will not pay tax on INR 10.

Agricultural Income

All income generated from agricultural activities is tax-exempt under the Income Tax Act of India. This is done to strengthen the agricultural sector. No lease of agricultural land or income from produce or from agricultural premises is subject to tax.

Public Provident Fund

Under Section 80c, the government has introduced PPF accounts for tax savings. Investment returns on PPF accounts are tax deductible. PPF interest rate is subject to quarterly changes. For example, if someone is in the highest tax bracket (30.9%), they will get a tax refund of up to 11.28% and save a huge amount. Anyone can open a PPF account at an authorized post office or bank branch. It is open to all ages, even minors. It is suitable for investors who like low-risk investments and do not want to deal with volatile stocks or mutual funds.

Education Loans

Under Section 80E, interest paid on higher education loans, whether for self, spouse, or children, is tax-deductible. There is no limit to this amount. The deduction can only be claimed against the amount of interest paid and not the principal amount.

Educational Scholarships

According to Section 10 (16) of the Income Tax Act, scholarships or awards awarded to students shall be exempt from tax. There is no maximum amount and the full amount is received for the purpose of the scholarship.

Voluntary Donations

A donation made for charities or philanthropic commitments can be claimed for tax deductions. This includes contributions to National Relief Funds that may also be claimed under Section 80g. Some donations receive a 100% discount, while others may receive a discount of up to 50%, depending on the reason for the donation. Only donations made in cash or by check can be claimed for deduction. The Ministry of Finance has identified some organizations to which donations can be made and tax deductions can be claimed.
 
Home Loans
Home Loan Shows You How To Save Taxes in India - 5 Times. There are three ways you can save on taxes with housing loans. This provides huge financial savings to taxpayers. Section 80C allows you to claim a deduction on the principal amount paid in the current tax year. The discount is up to Rs. 1,50,000. Section 24 allows you to claim a discount of up to Rs. 2,00,000 on the interest paid on the mortgage loan. Under Section 80EE, first-time home buyers can claim a benefit of up to Rs. 50,000. You can also get a second home loan if you live in the residence where you got the first home loan. There is no set limit for a second home loan for tax deduction.

Interest Income on saving accounts

Under Section 80TTA, interest earned on savings accounts can be claimed up to a maximum of Rs 10,000 as a deduction. It is not completely tax exempted as anything over the Rs 10,000 limit counts as taxable income. In your ITR, it is flagged as income from other sources and then deducted under Section 80TTA.
 
HUF Receipts
Hindu, undivided family status is granted to Hindu, Sikh and Jain families. According to the Income Tax Department, HUF is a separate tax entity, with a different PAN and a tax-exempt bank account. This complies with Section 10(2) which clearly states that any amount received from family income or the estate of such families is exempt from tax liability. Anyone can pay taxes on their paycheck in their name and deposit their secondary income into a non-taxable HUF account.

Unit linked insurance plan

A unit-linked insurance plan is an investment product that not only provides life insurance, but also directs your savings into market-linked assets. The asset allocation varies between debt and equity, offering about 5-9 fund options. On exit from the policy (only allowed after at least 5 years) or at maturity, the amount waived is tax-deductible. This is a long-term investment (15-20 years) and the investor must remember that the longer the investment, the higher the returns.

Traditional Insurance

These plans come with a fixed investment period and a guaranteed amount. These are lifetime or money back plans. The annuity gets a tax advantage under Section 80c, but if the plan dies or expires, the value is tax-deductible. However, it is important to note that they are inflexible and that the rates of return are low.

Some Additional Tips for Saving Income Taxes -

• Interest paid for a state education loan falls under Section 80E of the tax deduction.
• According to Section 80RRB, the tax deduction applies to income derived from royalties and patents. For a patent registered under the Patents Act 1970, an amount of up to Rs 300,000 income tax can be saved.
• Under Section 80U of the Income Tax Act, the tax deduction is applicable for disable people. To take advantage of the tax benefit provided for in this section, a certificate of disability is required. Depending on the severity of the disability, up to Rs1,00,000 can be non-taxed.

By choosing the most suitable tax saving investment plans according to your schedule, you will save a lot and eventually be able to achieve your financial goal at the end of the year.

Conclusion

There are many ways that can help you save taxes in India. Gift amounts in marriage or inheritance from a will are tax exempted. Acquiring a medical insurance is beneficial to you, your spouse and/or your child and at the same time you can claim a tax deduction from it. For business people, travel and meal expenses for tax savings may be submitted in addition to the ways mentioned above.
Salaried taxpayers can use travel leave allowances and home rent allowances to save on taxes. Medical bills and Gratuity can also be filed to save on income tax. Some employers allow you to restructure your salary to reduce your tax liability. The government has measures and tools in place to reduce the financial burden on taxpayers when paying taxes.
It is important to note that not all tax savers are the same in terms of asset class, so one must choose to use the tool that best suits their individual needs. The security, liquidity and profitability of the tax savings instrument must be taken into consideration. No financial decision should be made based solely on the returns to be obtained from the product. Your goal is not only to save on taxes, but also to achieve various goals that you have set for yourself. Therefore, one should always have clear goals and should associate his financial instruments with the desired goal.

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