Have you ever paid income tax? We bet you have. It’s quite a straightforward task, which everyone has to go through, and it’s not likely to change any time soon. But the filing process doesn’t need to be so complicated, especially since there are ways to reduce your taxable income or avoid paying taxes altogether. An income tax is a national tax administered by the central government. This is payable every year by a taxpayer on the income earned from various sources during the previous financial year. Income tax return filing is a legal way of staying away from the bulk payments of taxes without following any complicated process.
The Income tax return includes the information on your annual income along with the payable tax which you need to file. Under different sections of the Income Tax Act, some rebates and exemptions are provided by the Government of India. There are certain distinct ways through which you can reduce your tax outgo, thereby obtaining substantial savings for your investment capital. Let’s discuss them further to give you a clear outline of your available options. Keep reading then!
Discover Your Tax-Saving Options
Choose Tax Saving Investments
The government of India offers tax deductions to encourage individuals to invest in certain instruments. To minimize your tax burden, you can invest in some instruments under section 80C of the income tax act. The government allows you to claim a deduction of up to Rs 1.5 lakh on the investments you make in some instruments. In 2022, here are some of the areas where you can invest:
Public Provident Fund (PPF)
Employees’ Provident Fund (EPF)
Equity Linked Savings Scheme (ELSS)
National Pension System (NPS)
Sukanya Samriddhi Yojana (SSY)
Senior Citizen Savings Scheme (SCSS)
Fixed Deposits (FDs) of 5 years or more
Be specific About Tax Regime.
You can save more money by using the specific tax regime. Lower tax rates with no deduction are one of the main advantages of the new Tax Regime, while the old tax regime offers deductions under section 80C of the Income Tax Act. So, it is important to use the specific tax regime that works for you and enables you to save the maximum amount under section 80C of the Income Tax Act.
Get Health Insurance: Health insurance can be one of the most vital expenses for you and your family. Not just the health of your family but health insurance can prevent you from paying some extra taxes too. Under section 80D of the income tax act, taxpayers can avail of a deduction of up to Rs 25,000 for paying the health insurance premiums for themselves, their spouses, and dependent children.
Reap Benefits on Home Loans: Home loans have become some of the most popular investments in India, and they’re easy to obtain. However, it’s also important to understand your tax benefits and make the most of them. For instance, you can claim a deduction under Section 24 of the Income Tax Act for reducing both interest and principal payments on a home loan. Also, ensure that this loan is taken from any bank or non-banking financial institution in India. To avoid any confusion, remember that home loans taken from foreign lenders are not eligible for tax deductions under section 24 of the Income Tax Act.
Education Loan: An education loan can be a great source of saving tax if you know how to claim tax deductions on an education loan. You can claim this benefit with simple steps like filling out the income tax return correctly and calculating your taxable income correctly after including the interest paid on an education loan. An education loan’s tax benefit is that the interest paid on it can be claimed as a deduction while calculating your taxable income. (Section 80E of the Income Tax Act of India, 1961).
In Conclusion
There are plenty of ways to save taxes, either by investing in Mutual Funds/Equity, Savings accounts, or even as we talk about Home loans. However, you should know the techniques in the right manner and make the right investment. If you invest in some wrong methods, it might not return anything in the long run.
FAQs
Income Tax is a percentage of your salary or business income that you pay to the government directly. The Government uses this money for infrastructure projects and salaries for state and central government employees.
Section 24 of the Income Tax Act allows a deduction of up to Rs 2 lakh for home loan interest if the property is self-occupied or vacant. If the property is rented out, the entire interest amount can be deducted from ‘Income from House Property.
HRA stands for house rent allowance and is a special deduction under the income tax rules of India. It means that the salary component received towards the rent payment is allowed as a deduction from taxable salary.