Tips to Save Income Tax | How To Save Income Tax In India
Everyone wants to increase their income and everyone want to save taxes. And there are many ways to save income tax. You might know few of these but I am sure you will find at least one new way from this article that can save more tax this year.
What is Income Tax and why should it be paid?
Each citizen who earns a certain minimum salary must contribute to the nation building process and therefore the government charges a tax on the income we earn. The amount charged is based on the level of income that we earn.
Tax from salary or income tax is calculated once a year by the government when we file our returns, taking into account the total income earned in that financial year. In order to raise quick taxes efficiently, the government also collects funds from us at various times when we receive payments for various services rendered. This is called Tax Deducted at Source or TDS.
Who has to pay taxes and how much?
The government has established four major categories of people for Income Tax purposes and has laid out various tax slabs based upon income ranges.
As per Financial Year 2017-2018
Understanding Tax Deducted at Source (TDS)
Let us say you have a Fixed Deposit account with a bank and have earned Rs 10,00,000 as interest on your deposit. The bank will deduct TDS @ 10% or Rs 1,00,000 and credit the balance of Rs 9,00,000 to your account. The bank then deposits the deducted amount of Rs 1,00,000 with the government. Since you have paid the government (through your bank) Rs 1,00,000, you can then claim credit for Rs 1,00,000 when filing your income tax returns at the end of the year.
For all resident Indians, TDS is applicable on:
Salary, interest on debentures/securities, dividends, earnings from lottery, card games, horse racing or any other game, payments to contractors etc, insurance commission, brokerage, rents, any professional fee, technical fee, consultation fee, any income earned through sale or transfer of immovable property etc.
Tips to Save Income Tax
Savings under 80TTA
While we all maintain a savings account, many of us may not be aware that interest earned from savings account is not taxable upto Rs 10,000 and is applicable only on the amount above Rs 10,000. So if the interest income from your savings account is Rs 20,000, then the tax will be calculated on Rs 10,000 only.
Savings on Education loans under Section 80E
Many of us take an educational loan while working, either for ourselves or any dependent member of our family. Under 80E, any interest paid on education loan is not taxable.
Comparing Daily Travel Allowance (DTA) and company leased car option
Government allows for individuals to claim tax benefits upto Rs 19,200 per year, for Daily Travel Allowance (Rs 1600 per month) without having to present any bills, although the limit of non-taxable amount can vary based on the type and size of the vehicle you own.
But an alternate option worth considering could be a company leased car. If your organization has a policy of leasing car for employees, then this is certainly a good option, as you save on tax on the EMI and fuel, that you would have to pay if the car was in your name. In addition, you get the option to get a car replacement from the leasing company in case your existing leased car breaks down. This apart, several other benefits can be availed based on terms negotiated by your organization and the car leasing company.
Saving on meal coupons
Meal coupons up to Rs 2,600 are not taxable and therefore it is wise to ask your employer to issue meal coupons from popular companies like Sodexho, for instance.
Savings on Leave Travel Allowance
Expenses incurred on domestic vacations are exempt from taxes up to the permissible limit, based on your salary. Cost incurred on travel tickets of self, spouse, two children and parents, who travel along with you, is exempt from tax. This is also applicable for brothers and sisters, if they are dependent on you and travelling along with you.
Go smart and start tax planning
There are several more smart ways and instruments available to optimize your tax savings. Speak to your Tax advisor today to help you plan your tax savings and investments.
Investments would typically be instruments where you pay today and reap benefits later. But that’s not the only advantage of investments. They provided tax benefits too. Some common investments are:
- Mutual funds
- Investment in ULIPs
Investing in various forms of insurance also allows for income tax benefits. The two most popular methods of investing in insurance would be life and health insurance.
- Life Insurance
- Health Insurance
- Home loans for constructing or buying a house
- Home Loans For Renovations
- Tax Saving Fixed Deposits
- Post Office Time Deposits
- National Savings Certificates
- Provident Funds