After the Budget 2017, the income received by people is made transparent i.e. IT department is aware of the income received as all the transactions are to made through bank or digitally.
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The investments, charity and other payments which could reduce the taxable income which will reduce the tax burden are available to common man. So, without any further delay, we present to you 6 simple steps to reduce taxes for your taxable income.
1- Income earned as Interest on Savings Account
We all have a savings account where we add some money on a monthly basis. This account can help you to minimize your tax liability. As per the current guidelines as laid by the IT-Department under section 80TTA, interest earned on Saving account up to INR 10, 000 is exempted from taxation. This means that the additional income which was generated in form of interest on savings account will not be taxed if it is within INR 10, 000 for one assessment year. If the income earned in form of interest exceeds Rs.10,000 then only the amount exceeding Rs.10,000 will be taxed.
2 – Invest in Equity Mutual Funds
Share market has become a hot-spot for investors. Many people invest in shares with a view to get quick money. However, the Government of India wants its citizens to invest for a longer period of time. This is why, profits generated on sale of shares held for a period of more than 12 months are exempted from taxation under section 10(38). For example- If you invest INR 50, 000 in equity mutual fund on 01.01.2017 and sell it at INR 60, 000 on 02.02.2018, then the profit of INR 10, 000 would be exempted from taxation. The income generated on sale of shares would be treated as long-term capital gains.
3 – Continue to avail the benefits of Section 80C
Section 80C of the Income Tax Act is one of the most important sections for a taxpayer. Under this section, the tax payers can enjoy a deduction of up to INR 1,50,000. Some of the areas where investment would serve as a deduction are:
1. 5-year fixed deposit with post offices and banks
2. Equity Linked Saving Scheme
3. Life Insurance Premium
4. Tuition fees for children (max. of 2 children)
5. Principal amount paid against home loan
6. Public Provident Fund
7. Stamp duty and Registration fee
These deductions will reduce your taxable income and thus reducing your tax burden. But don’t forget limit of Rs.1,50,000 is threshold limit of deductions under section 80C, 80CCC, 80CCD.
4 – Saving through Home loan
In case you have a home loan, the repayment of principal amount during the year will be claimed under deductions of section 80C but you can also claim deduction under section 24 from the house property income of the interest paid during the year on the home loan. Home loan can reduce your tax liability in two ways one in 80C and other in section 24. Under section 24 you can claim deduction of maximum of Rs.2,00,000.
5 – Medical Bills
If you are a salaried tax payer then the IT-Department allows you to claim deduction up to INR 15, 000 on an annual basis. The amount received as medical reimbursement from employer up to Rs.15,000 will not be taxed. The amount can either be used for your medical bills or any of the family member*.
Here family member means: Spouse and the children (Children may be dependent or independent or married or unmarried) and wholly dependent parent. Sister, brother.
6 – Paying rent to your parents
If you live in your parent’s house, you can claim House Rent Allowance exemption by paying them rent. You can do this only in case the property is registered in your parent’s name. The rent received will be the income of the parent and will be taxed accordingly but you can pay a rent that will not make liable to pay tax on the rental income earned by the parent. But don’t forget the rental income is taxed after a standard deduction of 30% of the gross rent received net of municipal tax paid if any. Moreover, if you want to claim more deduction of rent paid, deductions under 80C for the parent’s should be also used. It is preferable if you enter in a rent agreement with them and make them an actual payment through bank.
One could reduce its tax liability more by donating the funds. This deduction can be claimed under section 80G.
Due to actual payment of funds as charity this deduction is not used that much. Thus, we find that there are numerous ways to reduce your overall tax liability. But, the most important element is to be a tax payer. Do not take taxation as a burden, rather treat it as a privilege that makes you a contributor towards nation’s development.
