Income tax is almost mandatory if you reach a certain income in India. In other words, no individual would be given respite from paying income tax if his/her annual income is above 2.5 lakhs per annum.
Key Facts Associated with Income Tax
Before you understand – How to save income tax? It is important to learn about the facts associated with paying income taxes-
- 93 percent of the households in India earn.
- Only 1.5 percent Indians pay income tax.
- Agricultural income is entirely tax-free (Even if it crosses 2.5 lakhs/annum)
- Out of the total tax collected by the Indian government nearly one-third the tax revenue comes from income tax and corporate tax.
Note – The government wants you to pay the taxes and avoiding taxes is a punishable offense. However, the government has certain provisions that enable you to save taxes through tax saving investment options.
Best Income Tax Saving Tips for Tax Payers
This often leads to a million-dollar question – What are the income tax saving tips?
There are Several Tax Paying Options that Include-
Section 80 C
The section enables you to save income taxes by maximizing your savings. Thus, individuals looking for income tax saving tips must consider the following options-
- Maximize your provident fund contribution
- Maximize the principal component of your housing loan
- Premiums on life insurance can save you taxes (applicable for self, spouse, and kids)
- Invest on National Savings Schemes
- Invest in Public Provident Fund accounts.
- Investing on Sukanya Samridhi Account meant for your daughter can save you income tax.
Note – The income tax saving limit is up to 1.5 lakhs.
Opting for the EMI options for purchasing your new house is always a good option as EMI paid up to 2 lakhs per year can be deducted from your income and can reduce your taxes on income.
Interest on Savings Bank Account
One of the widely used income tax saving tips is depositing money in the savings account. Interest earned on savings account up to Rupees 10,000 can be claimed to save your income taxes. However, income received from fixed deposits is not considered.
Depending on the conditions and the institution or NGO the donation amount can be accounted for income tax saving. In most cases, 50 percent or 100 percent of the donation is considered. However, if the donation amount is less than Rupees 2000, then there won’t be any deduction or tax saving consideration.
Premiums of Medical Insurance
Among multiple income tax saving tips available, it is always wise to invest in health insurances. The medical insurance premiums can be claimed for income tax deduction. In case your spouse is over 60 years of age then you can get a consideration up to Rupees 30,000. In other cases, you are liable to get a consideration of up to Rupees 25,000. The same is applicable for your parents as well.
Treatment of Diseases
The amount spent on fatal diseases like AIDS and cancer can be considered for tax saving. The amount is generally Rupees 40,000 for patients below the age of 60. However, the amount can go up to Rupees 60,000 or Rupees 80,000 if you parents/ spouse are aged above 60 or 80 respectively.
Benefits on Disability
You can claim tax benefit up to Rupees 75,000 in case of normal disability, and the amount can go up to Rupees 12,000 in case of severe disability. The benefit can be claimed for treatment of self, kids, spouse, and parents.
Planning to Saving Income Tax?
You can take all the income tax saving tips, but without proper planning – it becomes difficult to save taxes. You should consider the following before planning your income tax saving-
- The beginning of the financial year is the best time to start planning for your income tax savings. Planning during the middle or the end of the financial year will not give you sufficient time to execute your claims.
- Choose types of investments that are essential and give you benefit in the long term. Your investments should fulfill your goals and help you during your necessities.
- Consult the financial experts and determine the best tax saving investment options that suit your profile.
- You cannot consider all the income tax saving tips – Note down the maximum tax saving limit for each investment and act accordingly.
Importance of Income Tax
You can search for several income tax saving options, and look for different alternatives to escape taxes. However, as a citizen of the country paying income taxes truly contributes to the nation-
- The income tax collected by the government ensures that there are ample funds available during an emergency like war, drought, natural calamities,
- The government also provides key services and benefits to regular taxpayers as their money is used for development purposes.
Income tax is a key source of revenue for the Indian government. It is the duty of each eligible citizen to come forward and contribute to the nation’s prosperity by paying income taxes regularly.