How to save taxes.

When somebody says tax or tax returns you feel tiresome because who will do all the paperwork. Also, you are paying taxes on everything — food, clothing, travel, movies and still you’re ought to pay the income tax on your earned income which is used to build roads, buildings, malls and other development purposes. To be honest, you do not know what the government does with your money so, government helps us in saving tax with various methods and saving tax according to government norms can be very smart. You are open to pay taxes as per your wish in the slab your income falls in. The tax slabs are important to know. If your salary is up to 2.5 lakhs per annum then you need not pay any taxes on your income. Earning between 2.5 lakhs to 5 lakhs per annum incur you an annual tax of 5%. 5 lakhs to 10 lakhs income earning people pay 20% of the annual income as taxes and above 10 lakhs income you are paying an annual tax of 30% of the total income. If you spend money in following way then you can save money on your taxes and government will even pay you back the income tax if you have paid a large amount.

You can say two different types of words for saving income tax which are tax evasion and tax avoidance. Tax evasion is considered illegal as you are not paying your taxes and running away from paying the amount whereas tax avoidance is something which you talk about and all the above methods are for avoiding your tax which is legal as per your government of India. In fact, salaried people are the one who are tracked by income tax department and discovered if they are evading taxes. Although, people doing business also pays taxes but it is easy for them to evade from their taxes. If you plan for tax saving, it must be practiced from the Day 1 of the financial year. You can discuss with your employer and ask to provide all possible exempted expenses which can be telephone reimbursement, medical reimbursements, travel reimbursements. If you are earning high salary and pay high amount of taxes even after all the possible deductions from the salary, then you might be even interested in hiring a CA for saving your taxes as these are the people who can play with numbers and are extremely intelligent in saving taxes which you are not able to get reimbursed.

Now I can let you know about the income tax calculation which will help you to pay and save your tax on your own. Suppose Raj has an annual income of Rs. 6 lakhs per annum and he is paying a rent of Rs. 7000 per month. He is covered in his company’s health insurance plan. Now, let us see how he divides his money so that he pays the least tax possible. With the annual income of Rs. 6 lakhs per annum, Raj falls under the third slab, so deducting Rs. 2.5 lakhs from Rs. 6 lakhs gives Rs. 3.5 lakhs and he has to 5% of this income as tax which is Rs. 17,500 which is a lot of money. Let us see the deduction so that he reduces this amount. You discussed in the previous section where you came to know that HRA is one way to save tax and as per Rs. 7000 per month the annual house rent comes to Rs. 54,000. Now, under section 80C a person can save Rs. 1,50,000 but Raj is only paying Rs. 36,000 as the provident fund. He has got Rs. 1,14,000 more to save. He decides that he would invest his left over money in one of the tax saving schemes which is tax-saving FD or ELSS (equity linked savings scheme) which are both taxable. Now, you can see that Raj has saved his whole amount of Rs. 1,50,000 by investing the left over amount of Rs. 1,14,000 in savings schemes. Now, the total tax that Raj has to pay will be Rs. 6 lakhs being deducted by Rs. 1.5 lakhs under section 80C minus Rs. 54,000 as HRA which gives Rs. 3.96 lakhs. New tax calculation will be Rs. 3.9 lakhs minus Rs. 2.5 lakhs is equal to Rs. 1.46 lakhs. And, 5% of Rs. 1.46 lakhs gives us Rs. 7,300. Here we come to know that Rs. 17,500 is far more than Rs. 7,300.

Conclusion: Save money by investing money.

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