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5 investment techniques that exploit income tax regulations for smart tax savings
You may use these five tax hacks to save money on your taxes.
Investors have no control over earning better returns. They can, however, take actions to reduce their tax liability. Smart investors can take advantage of and reduce their tax bills thanks to income tax legislation. These aren’t methods of tax evasion; rather, they assist in tax avoidance through the judicious application of tax laws’ provisions. The five tactics listed below can help you save money on taxes without breaking the law.
Invest in the NPS rather than an annuity.
NPS can help you save money on taxes in three ways. First, NPS contributions are tax deductible under Section 80C. If the Rs 1.5 lakh limit under Section 80C has been reached, a further deduction of up to Rs 50,000 can be claimed under Section 80CCD (1b). Finally, under Section 80CCD, you can deduct up to 10% of your base wage if you contribute to the NPS (2). If your firm offers the NPS benefit, those who are near to retirement might claim even higher tax benefits. Up to 10% of the basic salary placed into the NPS by the firm on behalf of the employee is tax-free under Section 80CCD(2).
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The amount withdrawn will not be tax-free in its entirety. Despite the fact that the tax regulations make no mention of it, it is reasonable to presume that 60% of the withdrawn funds will be tax-free, while the other 40% will be taxed at the standard rate.
If you pay rent to your parents, HRA may be tax-free.
If the parent owns the property, a person living with her parents can pay them rent and claim HRA exemption. Even at the highest 30 percent tax bracket, the arrangement makes sense because rental income is subject to a 30 percent standard deduction. Section 80GG allows for a monthly rent exemption of up to Rs 5,000. The rent that the parent receives will, of course, be taxed.
If the rent exceeds Rs 1 lakh per year, the landlord’s PAN number must be provided for claiming HRA exemption. If the landlord lacks a PAN, he must make a declaration to that effect. The taxpayer must be able to show evidence of the transaction. You also can’t claim HRA exemption if you pay rent to your spouse or minor child.
Invest in the name of the housewife’s wife.
Money donated to the homemaker wife for personal costs is not subject to the clubbing rule, which means that if the woman invests with this money, her earnings will not be combined with the husband’s. According to experts, clubbing occurs only at the lowest income levels. If the earnings are reinvested, the money is treated as if it came from the wife alone. If the wife invests the gift money in tax-advantaged choices like stocks and equities funds, the husband would not be taxed on long-term capital gains of up to Rs 1 lakh per year, and that sum will be recognised as the wife’s income.
Senior citizens can benefit from a tax break.
In the case of parents and grandparents, there is no income sharing. If either of your parents is over the age of 65 and does not have any investments, you can invest in their name and earn tax-free interest. Adults over the age of 60 are entitled to a Rs 3 lakh basic exemption. Senior adults (over the age of 80) get a greater basic exemption ceiling of Rs 5 lakh. The Senior Citizens’ Saving Scheme, which now pays 7.4% interest, and the Pradhan Mantri Vaya Vandana Yojana are also good investments.
Giving money to an adult child and investing in his name can save you money on taxes, but be cautious. A gift is irreversible, and there is no going back once it has been given. If the child is financially irresponsible, you could lose 100% of the principal in your endeavour to save 20-30% tax.