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.
- · In your salary slip, there is a line mentioned as HRA which is called house rent allowance. This is covered under section 10(13A) and the people who are staying on rent for their job away from home are exempted from the taxes. If you are living in a metro city then you are paying 50% of the income tax and if you are staying in the non-metro city then you pay 40% of the basic salary as the income tax (it is not the annual income, it is the basic pay which falls under tax category). When you are paying your rent, you just need to develop a pay slip for the paid rent and yyour tax is exempted for the amount you are paying as house rent.
- Home Loan is also one of the ways where you can get your tax exempted which is claimed under the section 80C.
- If you have a house loan then you can also claim Interest which can be covered in the section 24.
- Section 1C is also one of the ways to get benefitted from the tax which says that you put your earned money in your provident fund and you do not pay tax on that amount. Also, you get an annual interest rate of 8.5% which expands your money.
- · Home Loan is also one of the ways where you can get your tax exempted which is claimed under the section 80C.
- · If you have a house loan then you can also claim Interest which can be covered in the section 24.
- · Section 1C is also one of the ways to get benefitted from the tax which says that you put your earned money in your provident fund and you do not pay tax on that amount. Also, you get an annual interest rate of 8.5% which expands your money.
- · If you are opting for a higher education degree and you apply for a loan on the same then you may get tax rebate once you start paying the loan in your job, and this can be covered under section 80E.
- · If you are paying for any cause or any relief like helping people who lost houses and properties in flood, fire or any natural calamity then you are covered under the section 80G.
- · Income tax can also be avoided once you buy a Health Insurance for yourself (Self and dependents) and your parents (Above 60) which can be covered under section 80D.
- · You can also buy mutual funds in the financial year to avoid your taxes which pays you fruitful interests and you get double benefit from buying these funds. The only problem with buying and saving from these funds is that they are linked to market and the interest that you get once you claim these fund can be high and substantially low. You must note the following caption which is stated in many advertisements, “Mutual funds are subject to market risks, please read the offer document carefully before investing.”
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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