At the end of every financial year, taxpayers try to save tax in any way possible. The Income Tax Act, 1961 provides many ways to reduce tax apart from the popular Sec 80C. It requires adequate knowledge to be able to save tax in several ways. Some of the ways to save tax are listed as under:
Save tax in 7 Simple steps
Salary restructuring
Restructuring of salary is not allowed in many cases. But, if you are good with the HR of the organization, then you might be able to do it. Some components to reduce tax liability are listed as under:
- Opting for food coupons apart from lunch allowances as they are exempt from tax up to Rs. 50 per meal.
- Include medical allowance, education, uniform, telephone expenses as part of the salary. Produce bills of actual expenses to exempt tax.
- Use a company car instead of your car to earn it as a prerequisite.
Options beyond 80C
Apart from Rs. 1,00,000 under 80C, here are few more options:
- Section 80D: A deduction of Rs. 15,000 for medical insurance of him and spouse and dependent children and Rs. 20,000 for medical insurance of parents above 65 years of age.
- Section 80G: Donations to charitable institutions and trusts.
House Rent Allowance
If you are receiving HRA from your company, then the least of the following can be exempted under Sec 80GG:
- 25% of the total income
- 2,000 per month
- Excess of rent paid over 10% of the total income
- This deduction will however not be available if you, spouse, and dependent child have your own residential house in the place where you perform your duties.
Utilizing Sec 80C
Section 80C provides exemption up to Rs. 1,00,000. It can be utilized in some of the following options or cases:
- Life Insurance Premium
- Public Provident Fund
- Equity Linked Savings Scheme
- 5 years Fixed deposit with banks and post offices
- Tuition fees of children up to a maximum of 2 children
- National Savings Certificate
Leave Travel Allowance
Use travel allowance for all your holidays which can be availed twice in a block of 4 years. If you did not claim the benefit in a 4-year block period, you can carry on the journey to the succeeding block and claim that in the first calendar year of the block. In this way, you will be able to get 3 exemptions in a row.
Tax on Bonus
A bonus received from the employer is fully taxable, however, you have to ask following from your employer:
- If you want taxes to be reduced or modify slabs, you can push the bonus to any of the subsequent years.
- Produce all your tax investment details to stop your employer from deducting any bonus on tax before handing it over.
Tax savings on Home loans
Use your home loans to save tax. The principal component of the loan is included in Sec 80C which offers a deduction of Rs. 1,00,000. The interest portion has a separate deduction of Rs. 1,50,000 which is deducted separately.
Start your tax planning before 31st March and file all returns before 31st July every year.