How to save Income Tax?
As soon as the financial year nears its end, everybody is concerned about the tax payments of their company, personal etc. These taxes differ from country to country, and the tax rates also differ from country to country. This hub covers the Income Tax in India.
There are many types of taxes which the government imposes upon its citizens. like Service tax, Value Added Tax, Wealth Tax, Income Tax, Property Tax, etc. Taxes are collected by the government from everybody to meet the expenses of the government, to improve the infrastructure of the country & to develop the country.
In some countries they like Saudi Arabia, the income from sales of natural resources like crude oil is very high so they do not impose any taxes, as a result they have become tax heavens for many people who evade taxes from other countries and save the money in these countries to save there tax.
Now coming to meat of hub, on how to save your income tax, there are many deductions available in the Income tax rules using which one can save a huge amount of money. . Income tax is to be paid by an individual or corporate when there income exceeds above the taxable limits. The various deductions available are Section 80C for investments, Section 80D for med claim or medical expenses and Section 80G for donation etc currently the tax slabs for the current financial year are as follows.
Income Tax Slabs
1) Say you are an Adult Male individual (Not Senior Citizen) with
yearly income of 3, 00,000/- then your tax works out to be
300000 – 150000 = 150000 (remaining
taxable amount, since there is no tax for 150000).
For the remaining 150000 @ 10 % = 15000 Rs
So 15000 Rupees is your tax
amount, since your income falls into the first slab of the table above.
2) Suppose if you income is around 3, 50,000 /- then your tax would
350000 – 150000 = 200000
(remaining taxable amount, since there is no tax for 150000).
For the remaining 150000 @ 10 % = 15000 Rs and 50000 @ 20% = 10000 Rs.
So total tax liability is 25000
But you can save a large amount from your tax if you can plan wisely.
Below are the various deductions you can avail of :
Below are the various deductions you can avail of :
- Conveyance Allowance.
you can show as the amount paid by your employer to you to cover your
travelling expenses to & fro to your office, the maximum allowable for this
is Rs 800 per month which comes to Rs 9600 for the year.
You can get tax benefit for this amount and you don’t have to submit any bills or vouchers for this.
- House Rent Allowance or HRA.
you are staying in a rented house or even if you stay in your parents owned
house then you can claim HRA for the same by showing that you pay the rent to
your parents. For this you have to submit the Paid rent receipts at your
office. HRA can reduce your tax liability by a large amount, as the HRA
calculation depends on the amount of the Basic component in your salary slip
then deductions available can be a little less than actual receipts provided.
Like last year I provided receipts of 96000 for one year (8000 per month), I
got a total benefit of around 70000.
- Investments under Section 80C.(Up
to 1 Lakh)
If you have invested any money in
Life Insurance Policy’s
Public Provident Fund
National Savings Certificate
Fixed Deposits in Banks,
Equity Linked Saving Schemes of mutual funds or
Then you can get the up to 1 lakh or the complete amount paid amount if it’s less than 1 lakh for deductions .
Expenses under Section 80D. (Up to Rs. 15000)
For these deductions you can submit the Medicals bills at your office. Even if you do not have any medical expenses, then you can get that at any medical shop for a few hundred rupees as it saves more money in taxes than money paid to get them. Though it’s a bit Black hat method, if one does not have any medical expenses, Still its one of the good ways to save tax.
- Donations to Charity organizations
under Section 80G.
If you have donated money to any charity organization, political party or any National funds you have to obtain the receipt for the same and have to look weather its exempted from income tax. It will be written on the receipt that deductions under 80G are available for this. Then you can submit it at your office, depending upon the organization you can get full or 50% of the amount paid as deduction. Donations to registered political parties are fully exempted.
Now let me give you my example
Suppose I have an income of 3, 50,000 /- per annum
House rent of 8000 Rs per month
Investments in ELSS mutual funds & LIC Policy amounting to Rs 60000
Medical Bills of Rs 15000 &
Donations to Prime Ministers fund for amount of Rs 1000.
Then my tax liability will be
calculated on the net income that is.
350000 – Rent( 70000 ) –
Investments ( 60000 ) – Medical Bills( 15000)
- Conveyance(9600 ) – Donation (1000)
which is equal to == 194400
Now my total tax to be paid is
194400 – 150000 == 44400 @ 10 % == 4440
So the total tax to be paid in
the year is Rs 4440.
If you would not include the above deductions then the total tax to be paid would have been around 25000 Rupees.
That’s how one can save money and
use it for other requirements especially in these conditions of economic
recessions and financial mess & fracas all round the world.
There are many more sections available that I will cover in my next
part of the article. If anybody needs any help regarding tax planning then you
can mail me at firstname.lastname@example.org