Income Tax: How to reduce the income tax liability? If you are a taxpayer, then this question must have come to your mind at one time or another. There is no way to avoid paying income tax if you have taxable income. However, you can definitely reduce the tax burden by proper planning. Interestingly, tax saving is linked to investment and expenditure. This means that income tax rules allow exemption from payment of taxes on certain investments and expenses.
Here we are telling you about seven great ways to reduce your tax liability.
Retirement Planning and Savings
If you want tax relief every year, then start investing now keeping in mind your retirement planning. We are saying this because as per the Income Tax Rules, you are entitled to income tax exemption on certain investments up to Rs 1.5 lakh. To take advantage of this, you can invest in schemes like PPF, NPS, EPF, Tax Saving FD etc. Abhishek Soni, Co-Founder and CEO, Tax2win.in says: “Start saving for your retirement. For this one can invest in PPF, NPS, EPF, Tax Saving FD etc. On the savings made with these investment options, you can avail income tax exemption under section 80C on investments up to Rs 1.5 lakh.
Pay the medical bills of the parents through online mode.
If you want to reduce the tax burden, then you should pay the medical related bills of your parents through online mode and also keep a record of it. Soni says that through this you can get tax exemption under section 80D on expenditure up to Rs 50 thousand.
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Keep the rent receipt and rent agreement handy for HRA benefits.
If you are living in a rented house then you can claim HRA (House Rent Allowance) exemption to reduce your tax liability. For this, you have to keep the rent receipt and rent agreement of the house. If your annual rent is more than Rs 1 lakh, then in this situation you will also have to give the PAN card of your landlord to your company. Through this, you can easily take advantage of HRA exemption.
Buy health insurance for yourself and family
You should take a health insurance policy for yourself and your family members. This will help you claim deduction on premiums paid under Section 80C and 80D.
Invest in Tax Saving MFs
Soni further said that you can also invest in different tax-saving mutual funds (ELSS). Under Section 80C of the Income Tax Act, tax can be reduced up to Rs 1.5 lakh on investments in ELSS mutual funds during the financial year. A total deduction of up to Rs 1.5 lakh can be claimed under section 80C. ELSS Mutual Funds are a category of Equity Funds i.e. tax on it will be same as Equity Funds. The dividends paid by these funds will be added to your income and calculated as per the slab tax. Since it has a lock-in of three years, there is no short term capital gain. No tax is payable on long-term capital gains up to Rs 1 lakh from this fund and 10 per cent tax is payable on gains above this. Investors do not get any benefit of indexation.
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You can invest in NPS
You can also invest in NPS and claim additional deduction of Rs 50,000 under section 80CCD(1B). Under this, even on investment up to 10% of the basic salary, you get the benefit of income tax exemption apart from section 80C. Interestingly, this exemption on investment can be available to taxpayers falling in all tax slabs.
Ask your employer to contribute to the NPS on your behalf
According to Sony, your employer can contribute to NPS on your behalf. In this situation deduction of up to 14% of salary (basic + DA) is made irrespective of any limit for deduction of income tax under section 80CCD(2) for Central Government employees. For others the limit is 10%.
(Article : Rajeev Kumar)