9 WAYS TO SAVE MONEY ON TAXES WHILE ALSO IMPROVING FINANCIAL HEALTH

Here are nine strategies to save money on taxes and enhance your overall financial health.

1.INVESTING IN TAX-AVOIDANCE VEHICLES

The government has offered specific tax deductions on sums invested in designated instruments under section 80C of the Income-tax Act of 1961 to encourage residents to save. The following are some of the most common tax-advantaged specified investment instruments:

  • Provident Fund for Employees (EPF)
  • PPF stands for Public Provident Fund (PPF)
  • Deposits that are fixed (tenure of 5 years or more)
  • Policies for life insurance
  • ELSS mutual funds are a type of mutual fund that invests in
  • Pension systems such as the National Pension Scheme (NPS) and others

Investing correctly in these products can help you reach your financial goals while also saving money on taxes (up to a ceiling of Rs 1.5 lakh per financial year). However, tax savings will only be possible if a person chooses the previous tax system. Many of the tax deductions and exemptions available under the old tax regime, such as the section 80C benefit, will be lost if one chooses the new tax regime, which offers lower tax rates. Those who have chosen the new tax regime should keep in mind that investing in the above products will only help them achieve their financial goals, not save money on taxes.

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2.SELECTION OF RELEVENT COMPONENTS IN THE EMPLOYER’S WAGE STRUCTURE

If you are a salaried employee, you can assess the wage structure supplied by your employer and choose the components of your salary that will help you maximise your tax benefits. For example, if you pay rent, you can get House Rent Allowance (HRA), phone/internet expenditure reimbursements, education allowance, food vouchers, and so on. As a result, when calculating taxable income, suitable deductions/exemptions can be claimed (as per the specified conditions).

3.INCREASED CONTRIBUTIONS TO RETIREMENT FUNDS

If the investment limit of Rs 1.5 lakh is not reached, salaried individuals can consider making additional contributions to the ‘Voluntary Provident Fund’ in addition to EPF. Subject to certain conditions, this additional donation will also be deductible from taxable income. Furthermore, the employer’s payment to NPS (limited to 10% of income) will be deducted from the employee’s pay.

Keep in mind, however, that an employee’s individual contribution to EPF and VPF cannot exceed Rs 2.5 lakh in a financial year; otherwise, income tax will be due on the interest accumulated on the excess provident fund contributions.

4.HOME LOAN TAX ADVANTAGES 

If a housing loan is taken out from a financial institution such as a bank, a non-bank financial company (NBFC), or a housing finance company to purchase or construct a home, the interest and principal paid on the loan can be deducted from taxable income, subject to certain limits set by the tax laws. However, tax savings can only be claimed if the old tax regime is chosen. Keep in mind that the deduction for principal payments is limited to Rs 1.5 lakh altogether under Section 80C.

5.HAVING HEALTH INSURANCE TO PROTECT ONESELF

Deductions for health insurance premiums paid for the self, spouse, dependent children, and dependent parents are allowed under the tax code. As a result, one can purchase health insurance for oneself and family members to help manage medical bills in the event of a medical emergency while also receiving tax benefits for the premiums paid (Rs 25,000 for self, spouse and dependent children; Rs 50,0000 for senior citizen parents, as applicable).

Senior adults can also claim a deduction of up to Rs 50,000 for medical expenditures incurred throughout the year if they are not covered by any health insurance coverage.

Have you submitted your tax return? Here’s how to double-check it.

6.TAKING THE PROPER DEDUCTION FOR EXPENDITURES, TUITION FEE AND OTHER EXPENSES

It’s worth noting that in some cases, even if no new investment is made, tax benefits can be obtained in conjunction with specific expenditures, such as Rs 5,000 for preventative health check-ups. However, the deduction for medical expenses is limited by the overall maximum set forth in section 80D, which includes the above-mentioned health insurance premiums. Parents can also claim a tax deduction for tuition fees paid for their children’s education up to Rs 1.5 lakh under section 80C (within the overall maximum of Rs 1.5 lakh).

7.TAX RETURNS MUST BE FILED WITHIN THE TIMEFRAMES STARTED

It is impossible to overstate the importance of filing income tax returns and other statutory paperwork (where applicable) within the prescribed deadlines. The same aids in the creation of a correct tax record that may be used in the event of a tax investigation or verification by the authorities. In addition, filed income tax returns (ITR) must be submitted for a variety of reasons, including applying for immigration documents, home loans, loss carryovers, and certain high-value transactions. As a result, it is critical to file one’s ITR within the specified timeframes in order to avoid incurring interest or penalties.

8. A NEW TAX POLICY THAT IS MORE LENIENT

From FY 2020-21 onwards, the government will implement a new simplified optional personal income tax regime.

Individuals and HUFs will be allowed to pay taxes at reduced slab rates that are applicable without certain exemptions and deductions if certain requirements are met. As a result, one can compare the tax payments under the old and new tax regimes and choose the regime that is more tax advantageous.

9.THE NEED FOR DOCUMENTATION

While no papers are required to be uploaded when e-filing ITR, for a hassle-free engagement with the appropriate authorities, one should keep adequate records of investments made, such as PF account statements, passbooks, copies of insurance policies, pension plans, bank statements, and so on.