You Save, You Earn…
Tax saving is a complicated subject for most people, as they do not clearly understand that there are more layers to tax-saving than only the exemptions available on your investments. With the right knowledge, not only you will pay the correct tax on your investments, but also know how to tax proof the income and actually create an asset out of your tax saving.
First of all, consider your capital as a liquid asset that does a better job with continuous investments, rather than being stagnant in the bank. Tax saving is a thoroughly discussed subject in the Indian constitution as well, where the tax savings investments are protected under Section 80C. There are various other schemes and allowances mentioned, like:
- Home Loans,
- Section 80D,
- National Pension Scheme (NPS)
- Interest on education loan (Section 80E)
- Rajiv Gandhi Equity Savings Scheme (Section 80CG)
- House rent allowance (Section 80GG)
- Medical treatment under Sec 80DDB.
- SukanyaSamariddhi account
- Children’s tuition fees
Additionally, some of the significant tax saving schemes and policies are discussed below in details:
Health Insurance (Section 80D)
A certain amount of money paid as a health insurance premium is not tax-deductible. Paid on an annual basis, this premium can save you some more taxes if you are a senior citizen.
Expenses to treat the disabled
As a part of Section 80DD, if you can furnish a certificate of disability, then you are eligible for a deduction of Rs. 75000 for 40-80% disability and Rs. 125000 for more than 80% disability. These expenses should solely be for training, rehabilitation, or treating a disease.
Expenses for treating specific diseases
As a part of Section 80DDB, tax deductions of up to Rs. 40000 are applicable for the treatment of diseases like AIDS, Cancer, and Dementia. For senior citizens, this deduction increases to Rs. 1 lakh.
Income through NRE account interest
Non-resident Indians have their NRE accounts in India. For the amount in the savings accounts or fixed deposits, they earn interest, and this interest is non-taxable, also called tax-free income.
Under Section 56(2), all wedding gifts are non-taxable, no matter the size of the gift, received as cash, cheque, or kind.
HUF and additional income
If you have multiple income sources, you can open a separate HUF account for the secondary income and invest it under Section 80C to avail tax benefits on this income, apart from your primary salary.
Reducing taxable income
To reduce your taxable income, here are some important tips to follow.
- You can reduce your tax liability significantly by understanding the terms of every single expenditure and investment that you make.
- Never wait until the last minute to calculate your taxes. Start this practice right from April and use your monthly investments to reduce the risk.
- Never invest where you have to pay too much taxes on the returns. Always go for the tax-efficient investment avenues.