Paying taxes on hard-earned income is challenging at the end of the financial year for each of us. Our income gets taxed in several ways: at the state and federal levels, by Medicare, and social security, to name a few.
Even there is a lot of hustle-bustle at the time of submitting various insurance forms and rent receipts. But if you want, you can save yourself from unnecessary financial stress and can save a good amount on taxes.
Though taxes are difficult to avoid, there are numerous strategies to help ward them off. To get clear insights into tax saving, you need to understand tax slabs too. If you are also looking for tax-saving options, then you can invest your finance and can use it as a saving instrument in the future as well.
Furthermore, you can also use different allowances to save taxes. Here are the following ways to protect your income from taxes. Let’s dive in!
Ways to save on your income taxes
This is not an exhaustive list, but has all the major exemptions. Many other exemptions are eligible in various special situations. As you can see, a lot of these exemptions have limits to cover only your basic needs and expenses. Knowing and understanding these allowances and exemptions is the first step while optimizing your finances.
Contribute to the National Pension System (NPS)
One of the best ways to save tax is nothing but contributing some amount to NPS. There is a deduction available under Section 80CCD up to Rs 50,000 for contributions to the NPS. This contribution helps you to invest in equity and debt pension funds so that you can build a retirement corpus. Later this amount can be withdrawn at the age of 60.
Get deduction on interest paid on your home loan
Your home loan can also save a bit amount for you. If you have a home loan and the interest payable on it is tax-deductible which comes under Section 24 of the Income Tax Act, then up to Rs 2 lakh per annum amount can come under deductions. But if you receive the house rent from that property, there is no upper limit. However, this total loss can be claimed in the head of income from house property which is decided up to Rs 2 lakh.
Secure some amount for future
One of the easiest ways to save your money is nothing but the following deduction under the Income Tax Act that any individual can claim. Interest received on savings accounts is tax-free up to Rs 10,000 per year which falls under Section 80TTA. This limit is decided by Rs 50,000 for senior citizens for FD as well as savings account interest that falls under Section 80TTB.
National Saving Certificate
A National Savings Certificate comes with a fixed rate of interest and has a tenure of 5 years. The interest received on NSC is counted as a tax saving option and up to Rs 1.5 lakh amount can be taken as a rebate under section 80C.
Pay for health insurance
The government provides relief while providing you tax rebate for the premium you pay for yourself and your family. As per under Section 80D, taxpayers are allowed to get a rebate of up to Rs 25,000 for family and another Rs 25,000 for parents. For senior citizens, this limit has been increased up to Rs 50,000.
Contribute a bit into charitable institutions
Being humans we are here to help each other, contributions made on charitable trust or relief funds are deductible under Section 80G. But you have to keep in mind that all deductions are not covered under Section 80G.
Public Provident Fund (PPF)
Public Provident Fund is also a good option to save on taxes. It is a government established savings scheme which is available for the tenure of 15 years available in almost every bank and post office in India. The rate of the interest changes every quarter and the interest on PPF is tax-free.
This is not the only limited list, there are more ways to save on your taxes. Amount of gifts and inheritance from a will or property are exempted from tax. Even acquiring medical insurance can be beneficial for you and your family. Along with that, if you are a business person, then you can use your travel and food expenses to save on tax and tax deduction can be claimed on it.
Moreover, there are some ways to save taxes on capital gain income. Tax on long-term capital gain on residential house property can be saved by investing it in another house property u/s 54. Apart from that, tax on long-term capital gains like land or building or both can be saved by investing it in specified bonds of NHAI or REC u/s 54EC and tax on long-term capital gain on asset other than a residential house can be saved by investing it in a residential house property u/s 54F.
While planning your investment, you should always remember that not all sorts of tax savers are the same in terms of assets class. You should be cautious while choosing the instrument that best suits your needs. The liquidity, security, and safety of the instrument should be taken into consideration. Your aim should not only be saving on taxes but also to achieve a different set of financial goals that you have set for yourself too.