In this post, I cut through all the junk flooding the Internet and provide you with the steps you can take to get your liability to a minimum figure possible. So here are the steps to reduce tax liability on your income:
Plan your tax saving in advance
If you are one of those people who do not plan tax saving before you start getting bombarded with notices in the month of January through March, you’re doing disservice to your own finances. Right from the start of financial year in April, you need to start planning your investments.
Invest in tax exemption investment options (as per Section 80C)
Under Section 80C, the maximum tax exemption limit is Rs 1.5 Lakhs per annum. To know the various investments that can be claimed as tax deductions under section 80C, here is the list for you:
- PPF (Public Provident Fund): This is one of those investments that not only offer tax exemptions, but also have rich returns for you at the end of a stipulated time period. Public Provident Fund (PPF) is backed by Government of India and offers great interest rates and returns. Once you are sure of the amount you can invest, just go to your bank and get it done.
- Life Insurance Premium: This one is also a no brainer. Every premium you towards for your life insurance policy can be claimed as tax exemption. So not only it protects you in case of an incident, it also protect a part of your income from tax. And there are others like the following:
- EPF (Employees’ Provident Fund)
- 5 years Bank or Post office Tax saving Deposits
- National Savings Certificates (NSC)
- ELSS Mutual Funds (Equity Linked Saving Schemes)
- Children’s Tuition Fees
- Sukanya Samriddhi Account Deposit Scheme
- SCSS (Post office Senior Citizen Savings Scheme)
- Repayment of Home Loan (Principal only)
- National Pension System
- NABARD rural Bonds
- Stamp duty charges for purchase of a new house
Save all your bills through the year
All through the year, we make various kinds of expenditures. But are you aware that a lot of those expenditures can save you a lot of money? Here is a list of bills that can be collated to get exemptions from the tax.
- Medical bills
- Food bills
- Telephone bills
- Internet bills
- Petrol/Diesel bills
- Driver’s salary
- Attire bills
- Rent receipts
All these bills can amount to a huge sum, which goes a long way in reducing your tax amount.
First time home buyers get additional tax exemption under Section 80EE
In Budget 2016-2017, a new proposal has been made in which, first time home buyers are eligible for an additional tax deduction of up to Rs 50,000 on home loan interest payments under section 80EE. This deduction is over and above the Rs 2 lakhs limit under section 24 of the income tax act. The value of this house must be 50 lakhs or less. You can read more about this here.
Utilize your holiday bills
LTA facility. If you are travelling by means like airplanes or trains that are expensive, you can produce your tickets to your employer. This is a huge tax saving especially when you travel by air with family and spend 30 to 40K on air tickets.
In closing, I want to say that even if you missed out on producing some bill or showing some investment at the time of filing your ITR, you can produce those bills and investments at the time of submitting Form 16 a few months later. If your bills are genuine, you also get a part of the tax amount refunded.