Tax
Tax Planning: Top 7 Ways to Save Tax Legally in India
Shyam: Rohan, I feel there is no need to work for these long hours.
Rohan: Why?
Shyam: Don’t you feel that all the money you earn through this sweat and toil half of it goes to the government. Isn’t the middle class paying the heavy taxes?
Rohan: Yes, I agree and there is no escape route to paying taxes. You have to comply with the laws of the country you live in. But one thing that you can do is think of legal tax saving plans for individuals.
Shyam: Is there anything like this that exists?
Rohan: Yes, ofcourse. You must check different life insurance plans that help you magically in your tax planning strategies.
Shyam: Ah!! I never used my brain for it. Let me consult my financial advisor for tax saving legal plans.
If you are also worried and irritated about the heavy outflow of income in the name of taxes, you must immediately think of some strategic tax saving plans.
Table of Content
What are tax savings legal plans?
Why do you have to pay taxes?
Tax Planning: Top 7 Ways To Save Tax Legally in India.
Conclusion.
What are tax saving legal plans?
Tax saving legal plans are ways through which you can manage your finances and save it for the future. You can save taxes legally with the help of life insurance plans, investing in market operated financial instruments like mutual funds, SIPs, ELSS, etc.
You feel the need of saving taxes because as the income grows the outflow of the taxes also increases. In the end, it leaves you with the feeling that you are not able to save much for your family.
Doesn’t the thought of saving irk your mind to work more in the direction of disciplined tax savings?
If the answer is yes, below are a few things that you can do to save tax legally.
But before that you must read and be mindful that we are talking of legal actions that you can take to save taxes. Moving forward, let us first read why do you have to pay taxes?
Why do you have to pay taxes?
The money you pay in taxes is used by the government for the development of facilities and infrastructure in the country. The roads, healthcare facilities, and improvement in the common support and care is all because many like you pay taxes. The officials make sure that all the development is up-to-date enabling you to utilize it completely.
Now this does not mean that you give away all the money which you could have utilized to create financial assets for the family. Isn’t it?
If this sounds logical to you, further is a must read for you.
What are the ways in which you can save taxes?
You can do either of these to save taxes legally in India:
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Claim Expenses: Claim expenses to save income tax in India. For example: If you have purchased a health insurance policy, you can claim the expense to save tax.
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Investing in tax saving instruments: Invest in tax saving instruments that are permissible for tax deductions under Section 80C of Income Tax Act, 1961.
Tax Planning: Top 7 Ways to Save Tax Legally in India.
These are some of the safe and legal ways using which you can save tax legally in India.
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Tax planning through home loan:
If you have a home loan, you can claim a deduction for repayment of the principal amount under section 80C.
In addition, you can deduct interest paid on a house loan under section 24 of the tax code. In some circumstances, the highest deduction allowed is Rs. 2,00,000, while in others, there is no limit to the amount of interest paid on a home loan. In common, tax planning to save money on taxes by taking out a home loan is strongly recommended because the deduction for home loan repayment can be claimed under three distinct sections, resulting in significant tax savings for the taxpayer.
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Tax planning with deductions under Section 80C, Section 80CCC, and Section 80CCD:
In order to promote tax savings and induce savings in the common man in the correct manner, the Government of India allows tax under Section 80C, Section 80CCC, and Section 80CCD.
The cumulative maximum deduction under these three categories of section is Rs. 1,50,000. You can claim these deductions to avoid tax if you've done adequate tax planning throughout the year by investing under any of these sections alone or in combination, but the total deduction permitted is only Rs. 1,50,000. Some of the common instruments where you can invest in to save tax are:
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National Savings Certificates
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Life Insurance Plans
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PPF Accounts
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5 year tax savings fixed deposits
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Mutual Funds.
An additional deduction of tax saving for Rs.50,000 under Section 80CCD has been introduced through Investment in National Pension Scheme (NPS).
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Tax Planning under Section 80D:
One of the most traditional and common ways of saving tax legally in India is through health insurance plans. Income tax deduction is allowed to save tax if the expenditure has been paid to insure health. The policy can cover self, spouse, dependent children, and dependent parents. The limit of tax deduction for each case is specified.
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In case the medical insurance premium is paid by the individual for himself, spouse, dependent children – Rs. 25,000. If the person insured is a Senior Citizen, the deduction allowed should be Rs. 30,000.
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If the individual pays the payment of medical insurance premium for parents, whether dependent or not – Rs. 25,000. In case the parents of the individuals are Senior Citizens, the deduction allowed under Section 80D should be Rs. 30,000. The premise for senior citizens has been increased from Rs. 30,000 to Rs. 50,000 from Financial Year 2018-19 onwards (Announced in Budget 2018).
| Description | Medical Insurance Premium Paid for Self, Spouse, and Dependent Children | Medical Insurance Premium paid for parents | Total Deductions under Section 80D |
| No one is of 60 years | Rs.25,000 | Rs.25,000 | Rs.50,000 |
| Individuals and families are less than 60 but parents are above 60. | Rs.25,000 | Rs.50,000 | Rs.75,000 |
| Both individual and parents are above 60 years | Rs.50,000 | Rs.50,000 | Rs.1,00,000 |
This deduction of Rs. 5000 is not in addition to the above-mentioned deductions of Rs. 25,000/Rs. 50,000, but rather is included in them.Preventive health check-ups are a new deduction that has been granted under this clause. Under Section 80D, a deduction of Rs 5000 would be permitted for the payment of a preventative health check-up for the individual or his family members, including parents and dependent children.
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Tax Saving under Section 80E for education loan:
If a taxpayer takes out an education loan for himself, his spouse, children, or a student for whom he is the legal guardian, he can deduct it under Section 80E and save money on taxes.
This deduction is only available for the repayment of interest on an education loan, not for the repayment of the principal. There is no upper limit on the amount of interest that can be deducted under section for repayment of an education loan. Individual taxpayers, not HUFs, are eligible for the Section 80E deduction.
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Expenses made to treat for disabled dependent:
Section 80DD allows for tax deductions in the name of expenses made to treat the disabled person. Total expenses made for a person with 40 to 80 percent disability is eligible for a fixed deduction of Rs. 75000, while money spent on a person with more than 80 percent disability is eligible for a fixed deduction of Rs. 125000. These costs should be incurred for the treatment of a sickness, rehabilitation, or training. To take advantage of this deduction, you will need to provide a certificate of disability.
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Cost incurred for treating specific diseases:
Section 80DDB allows for deduction of cost incurred for treatment of specific diseases.. Expenses incurred to treat specified conditions such as dementia, cancer, and HIV/AIDS are eligible for tax benefits. Tax deductions of up to Rs. 40000 are available for such diseases. The sum doubles to Rs. 1 lakh if the expenses are for a dependent older citizen.
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Amount from Provident Fund:
The interest earned on the provident fund is tax-free. You must wait five years before withdrawing money from your Provident Fund.
Conclusion:
These are the common ways to save tax legally in India. You can pick any of the above methods considering your personal requirements. Legal tax saving plans for individuals can help you divert your income to generate returns. Though paying tax is a duty, if you can save it in an efficient manner, you can create wealth for yourself also.For more information and detail, you can consult your tax advisor.
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