There is one aspect that all earning people have in common, regardless of where they come from, where they reside, or where they work: tax. The principal source of money for the government is taxation. It is what pays for the construction of roads and other critical infrastructure. It pays for LPG and food subsidies and ensures the nation’s economic growth and development. However, there are alternatives for consumers to save money on their income taxes. Ordinary folks are often looking for methods to save money on their taxes. Here are five methods for lowering your income tax:
1. Medical Insurance
Any responsible adult must have health insurance. The pandemic that most of us survived over the last two years has brought this fact to the forefront of our minds. You never know when an illness will strike you. You can deduct up to 25,000 in premium payments from your taxable income each year. This means that if your taxable income is $500,000 and you pay a $10,000 annual premium for health insurance, you may simply deduct this amount from your total due. You will only be required to pay tax on $4,90,000.
2. Life Insurance
In terms of tax savings, life insurance products provide a double benefit. To begin, you are excused from paying premiums. Second, the money you receive at maturity is tax-free. You can deduct up to 1.5 lakhs from your annual premium payments. This implies that any premium you pay is deducted from your tax liability. The tax payment is based only on the leftover amount.
3. Investing
Regardless of how appealing equity investments are, they do not provide tax benefits. If you’re making a lot of money in the stock market, the government will want a piece of the pie. However, there are some mutual funds that can provide you with tax advantages. Mutual funds such as ELSS (Equity-Linked Saving Scheme) enable deductions of up to 1.5 lakhs. Long-term capital gains tax is likewise not applicable to these products. In this instance, whatever profit you make will be fully tax-free.
If your profits for the year are less than 1 lakh, you can simply claim exemptions from long-term capital gains tax on conventional equities investments and other mutual funds.
4. Government Schemes
PPF, EPF, NPS (Everything You Need to Know About National Pension System (NPS) Scheme), and other government schemes are examples. These are effectively tax-free investment vehicles created by the government. You can also claim deductions of up to 1.5 lakhs in this case. However, there is a lengthy lock-in time in this scenario. PPF, for example, has a 15-year lock-in period. You will not be able to access the amount invested until the lock-in period expires.
5. Loans
Certain types of loans are eligible for substantial tax breaks. Home loans, in particular, provide the most perks and exemptions. You can claim deductions for both the principal and the interest payment. The highest exemption permitted per year is 1.5 lakhs.
Exemptions for education debts are also available. There are no exemptions for other sorts of loans. There are other tax-saving strategies, but these are by far the most common.