Tax Saving Tips for the Common Man

   Tax is probably the most dangerous nightmare that a common man in India fears about. When you earn working so hard, it is obvious to get this awful feeling about giving away some amount of your income every year. Well, if you are a cautious person and would like to make smart investment and financial decisions,you do have to spare your valuable time for these much valuable ways out to know how you can get rid of this nightmare.

The government itself offers many ways to help you reduce your tax burden. Various sections of the income tax law speak about this. This article will inform you about the numerous options available to reduce your tax burden and help you to know how you can effectively use these options.

A] Tax Savings On Expenses

Savings on Medical Insurance :

You can buy a medical insurance which is suitable to you and your family and can claim a deduction up to Rs. 25, 000 according to section 80D.This amount is Rs. 50,000 for senior citizens.

Savings on disabled dependent :

If a disabled person in your family is dependent on you, then you can avail tax benefit up to Rs. 1,25,000 under section 80DD.

The disabled person himself also gets tax benefit up to Rs. 1,25,000 under section 80U.

Savings on Medical Treatment :

For specific diseases like cancer or AIDS which require high expenses for their treatment, section 80DDB provides you relief from tax burden. The amount of deduction is either the actual amount paid or Rs. 40,000, whichever is less. If the diseased person is a senior citizen or a very senior citizen, the amount of deduction is either the actual amount paid or Rs. 1,00,000, whichever is less.

Savings on Loss under House Property :

Interest on Home loan will be reduced from NAV of house property which will result in losses under the head of house property.

Such losses are allowed to be offset against income from other sources like salary etc. The remainder income is taxable according to the income slabs of the individual. Two lacs is the maximum loss that can be set off against other incomes in a financial year.

Savings on Home Rent :

Under section 80GG, you can get tax benefit if you don’t get HRA component in your salary.

Savings on Educational Loan :

Section 80E allows tax deduction for the interest amount and not the principal amount of the educational loan. The best part is that there is no limit to claim deduction for educational loan. Taking educational loan on child’s name is recommended so as to save taxes.

Savings on Charity :

Section 80G of the income tax law provides tax relief on general donations.

B] Tax Savings on Investments

The income tax law also helps you in wise wealth management. The various sections of the law provides tax relief if you make long term investments. This serves dual purpose, saves your tax and reaps benefits on maturity. To reduce your taxable income, section 80C of the income tax law provides you benefit of investments upto Rs. 1.5 lakhs. Thus, an individual or a HUF can claim a deduction of Rs. 1.5 lakhs from his total income.

Savings on PF :

If you have a PF account, you do have to invest in it. Under section 80C, you can claim a tax deductionon your contribution to the PF account. If you complete 5 years of your service, you need not to pay tax on the interest and maturity amount of your PF.

Savings on VPF :

Usually, 12% of your salary is invested in your PF account. However, if you want to enjoy a tax free interest of 8.4%, you can voluntarily make more percentage of your salary investment in the PF account. If you do so, your PF account becomes your VPF account. Under section 80C, you can increase your PF contributions and enjoy more tax benefits.

Savings on NPS :

Under section 80CCD (1) and 80CCD (1B), you can claim tax deductions on your contribution to this scheme which is provided by the Postal Department of India. However, it should be known that the interest income is taxable but it can also be claimed for deductions.

Savings under SukanyaSamriddhiScheme :

If you have a girl child, you can avail benefits of this scheme. Section 80C of the law allows you to invest in this scheme which provides higher rate of return on investment as compared to PF and PPF.

ELSS:

Keep your worries at bay and invest in mutual funds like equity linked saving schemes. Investing in ELSS can provide a tax benefit of up to Rs. 1.5 lakhs per year.Go, consult a good mutual fund agent and understand all its capacities. Once you are well acquainted with it, you can do a direct investment without paying the brokerage charges to your agent.

C] Other Tax Saving Options

Apart from availing benefits from the income tax law, a number of other financial gateways are also there that pave your way to make your investments in the right direction and help you with right tax savings.

Investments in the form of Gifts :

Another good way is to gift money to your family members and ask them to invest in bank fixed deposits or corporate fixed deposits. You can invest your money in FDs in the name of your parents or kids and enjoy tax benefits as well as interest earnings. However, in some cases clubbing provisions apply.

Best Solution for your Tax Saving Investments

The best way to plan your investment is the start of a financial year. This will help you to save in the right investment option, prevent you from taking incorrect investment decisions and will help you achieve your long-term goals. Smart investors look for achieving two goals - building wealth and saving tax.

Based on your goals and requirements, you can invest in various schemes that are suitable for your financial goals.

Remember, money saved is money earned. You don’t require much brain to earn money but you do require it while spending. Be a smart investor and save yourself from paying more tax than you actually should.

Stay tuned for our next article on Tax Saving Tips for Businessman.