The proverb states, “A penny saved is a penny earned.” One strategy to reduce taxes and boost your income is through tax preparation. Deductions are allowed by the income tax legislation for various investments, savings, and expenses made by the taxpayer during a specific financial year. We’ll talk about a few ways you can reduce your tax liability.
By purchasing health insurance, you’ll be able to use section 80D of the tax code to deduct up to Rs 25,000 from your yearly premium payments. If the policyholder or spouse is over 60, the deduction can be doubled to Rs 50,000.
Employees in India are permitted to receive a House Rent Allowance (HRA), which is taken from their pay. Since HRA can be deducted, persons can reduce their tax obligations. Individuals must show proof that their total annual rent exceeds Rs, such as the house owner’s PAN card, a lease agreement, etc. Additionally, individuals are only permitted to claim the lowest of the following HRA amounts provided by their employer:
- The employer provided the HRA.
- 50% of the base wage plus DA (if the employee is in Mumbai, Chennai, Delhi, or Kolkata). 40% of the base wage plus DA (if the employee is in other cities).
- Ten percent of the basic salary is less than the actual house rent plus DA.
People can avoid paying taxes by choosing an education loan for further education for themselves, their children, their spouse, etc. People may deduct the amount they paid for paying the loan interest under Section 80E of the Income Tax Act. The total number of deductions they may take is unrestricted. Individual taxpayers are the only ones who may deduct expenses under Section 80E.
Invest In Shares And Mutual Funds
People can reduce their taxable income by investing in shares and mutual funds. Citizens who earn less than Rs. 12 lakhs yearly are entitled to an additional deduction under Section 80CCG of the Income Tax Act if they invest money in the shares of certain corporations and certain designated mutual funds. Under the Rajiv Gandhi Equity Savings Scheme, deductions are permitted.
Indian citizens can reduce tax liability by claiming deductions for gifts they make to charitable organisations, social causes, or the National Relief Fund. They may claim these deductions in accordance with Section 80G of the Income Tax Act. The Ministry of Finance maintains a list of organisations that taxpayers may support, and whether tax deductions are permitted or not depends on the reason for the donation. For gifts that were given in kind, no tax deductions are allowed. If you donate with cash, you can deduct up to Rs. 10,000 from your taxes; if you donate with checks, you can deduct any amount beyond Rs. 10,000.
Leave Travel Allowance
Taxpayers are eligible for tax-free LTA if they get LTA from their employers. People have a four-year window in which to make two claims. They must travel anyplace in India during their leave to be eligible to get it.
These are a few standard methods people use to reduce their tax obligations. Taxpayers may save significant money if they carefully arrange their income, investments, expenses, and taxes. It is cautioned against using illegal methods to reduce taxes. For instance, if someone tries to avoid paying taxes, that money is regarded as unaccounted for or “black money,” which can cause many issues if discovered.
How to lower the taxable income is an easy and beneficial question. You can invest your funds with the help of these payments and investments while also saving tax on the payments and contributions you made. In either case, you can gradually save more tax and build up a corpus that you can use to achieve financial stability.