7 ways in which taxpayers can reduce their tax liability

7 ways in which taxpayers can reduce their tax liability

Nobody enjoys paying taxes in this world. There is no way to avoid paying taxes if you have taxable income. However, effective planning from the start of the fiscal year might help you lower your tax liability.

Income tax rules in India have exempted certain expenses and investments from taxation, or if you make certain investments or incur certain expenses, you may be entitled to tax deductions and exemptions. As a result, such investments and expenses can help you minimise your tax liability.

Income tax rules in India have exempted certain expenses and investments from taxation, or if you make certain investments or incur certain expenses, you may be entitled to tax deductions and exemptions.

Here are seven strategies for lowering your tax bill:
1. Premium payments for life insurance, pension plans, and provident funds

Individuals can deduct up to Rs 1.50 lakh in payments for life insurance premiums, provident fund, PPF, investment in ELSS schemes, tuition fees paid for up to two children, National Savings Certificate, home loan principal repayment, and so on under Section 80C of the Income Tax Act 1961.

Section 80CCC allows you to deduct premiums paid for annuity and pension plans offered by insurance firms. Similarly, deductions can be claimed on investments made in the Central Government’s pension system under Section 80 CCD (1).

However, the total deduction for all three components combined cannot exceed Rs 1.50 lakh.

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2. Contribution to the National Pension System (NPS)

An extra deduction of up to Rs 50,000 can be claimed on NPS contributions made by employees under Section 80 CCD (1B). This is in addition to the investment made according to Section 80CCD (1).

A deduction for an employer’s NPS contribution can be claimed under Section 80 CCD2. However, the size of the tax benefit will be determined by the type of employer.

-The deduction limit is 10% of the basic wage plus dearness allowance if the employer is a PSU, state government, or any other private sector enterprise (DA).

If your employer is the federal government, you can deduct up to 14% of your basic salary plus DA.

GST exemption items: Govt sets up ministerial panels to review tax slabs 

3. Rental property income

An individual can claim a tax deduction of up to Rs 2 lakh on interest payments on a house loan or home improvement loan on a self-occupied property under Section 24(b). However, payments made toward the principal of a house loan can be claimed under Section 80C up to a maximum of Rs 1.50 lakh.

You cannot, however, claim this tax benefit if you have chosen the new tax regime.

4. Premium payment for health insurance

A deduction can be claimed under Section 80 D for premiums paid for health insurance for self and dependent family members, as well as for preventative health check-ups. However, there are certain limitations:

Section 80D allows a deduction of Rs 25,000 for self/spouse, dependent children, or patents. This deduction might be up to Rs 50,000 if the claimant or any family members are senior people. Only a Rs 5000 deduction is allowed under Section 80D for preventive health examinations.

Medical expenses incurred by a senior citizen can also be deducted up to Rs 50,000 under Section 80D.

5. Expenses for the care and treatment of a dependent who is impaired

Expenses for the maintenance or medical care of a disabled dependent can be deducted up to Rs 75,000. However, if you have a severe disability (80% or more), you may be eligible for a reduction of up to Rs 1.25 lakh.

6. Medical treatment reimbursement

A deduction of up to Rs 40,000 can be claimed under Section 80 DD (1B) for medical expenditures incurred by self and dependent family members for specified diseases. If one of the family members is a senior citizen, the deduction limit would be increased to Rs 1 lakh.

7. The amount of interest paid on a student loan

An individual can deduct interest paid on an education loan taken for the higher education of a dependent child or spouse under Section 80E. It’s worth noting that there’s no maximum limit to this deduction.

Haven’t received an Income tax refund yet? Follow these Steps

Haven’t received an Income tax refund yet? Do this

If there is a discrepancy between the information on the tax return and the information on file with the IRS, the refund may be delayed. Another reason for the delay could be if the bank account information provided is inaccurate.

Between April 2021 and October 4, 2021, the Central Board of Direct Taxes (CBDT) paid refunds of Rs 82,229 crore to over 53.54 lakh taxpayers. Tax refunds are usually paid within 20-45 days of the conclusion of ITR processing by the Centralized Processing Centre (CPC).

You should receive your refund within 30-45 days after your income tax return (ITR) has been submitted. However, there are a variety of reasons why your refund may be delayed.

Income Tax Refund can be claimed when:

  • You did not provide your company with all of the investment proofs. As a result, your employer’s tax deductions exceeded your actual tax due for the fiscal year.
  • On your interest income from bank FDs or bonds, excess TDS was deducted.
    The advance tax you paid on self-assessment exceeds your regular assessment tax liability for the corresponding FY.
  • If there is a case of double taxation,

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How to check Income Tax refund status:

On the National Securities Depository Ltd (NSDL) website, as well as the Income-tax Department’s e-filing portal, you can check the status of your income tax refund.

1. On the NSDL website, for starters.

Step 1: To trace your return, go to the NSDL website.
Step 2: A new window will open, displaying the following webpage. Fill in the required information, including PAN and AY, and then click ‘Proceed.’
Step 3: The status of your income tax refund will be presented, as shown in the figure below.

2. On the e-filing site:

Step 1: Go to the Income Tax Department’s e-filing portal by clicking here.
Step 2: Select View Returns/ Forms from the drop-down menu.
Step 3: Select ‘Income Tax Returns’ from the ‘My Account page. Submit the form.
Step 4: Select the acknowledgement number from the drop-down menu.
Step 5: A page showing your return details along with income tax refund status will appear.

Haven’t received an income tax refund yet? Reasons for delay

Tax refunds are usually paid within 20-45 days of the conclusion of ITR processing by the Centralized Processing Centre (CPC). If there is a discrepancy between the information on the tax return and the information on file with the IRS, the refund may be delayed. Another reason for the delay could be if the bank account information provided is inaccurate.

Reasons why the refund hasn’t reached you and what to do:

1. Your reimbursement request requires further evidence from the IT department: Contact the assessing officer as soon as possible by phone or mail, and send the needed paperwork. Obtain a written acknowledgement from the officer.

2. Request for a refund was denied. According to the IT department, you owe them the following taxes: The government may send you a notification detailing the amount of unpaid taxes. In this situation, double-check all of your paperwork and compute your tax liability and refund due. File a rectification to support your claim if the figures you entered in the returns form are valid.

If the returns filed is found to be incorrect, pay the outstanding tax demanded by the department within the time limit mentioned in the notice.

3. Refund request determined to be erroneous by the IT department: If the department determines that your refund request is incorrect, you will receive a note stating why. You can file a rectification to support your claim even if you receive the notice.

4. Forgot to add a tax break you’re entitled to: If your returns have not yet been processed by the IT department, you can go ahead and modify them to include the missing deductions.

5. The bank account information provided to the IT department for tax filing has changed: If your bank account information has changed, inform your assessing officer of the new account number and MICR code. The evaluating officer will advise the bank of this information and request that the money transfer process be updated.

If you haven’t still received your refund, do these things:

1. Review your ITR:

If there is a discrepancy between the information on your tax return and the information on file with the IRS, your refund may be delayed. So, go over your ITR to see if you made any mistakes. If you haven’t received your refunds or received any correspondence from the IRS in the last two months, the first thing you should do is review your ITR.

2. Additional information:

The Income Tax Department may require additional documentation to process your refund request in some situations. If the department requires more proof to complete your refund request, please contact the assessing officer as soon as possible by phone or mail and submit the needed documentation to ensure that your refund request is processed quickly and the cash credited as soon as possible.

3. Re-evaluate:

If there is an outstanding tax amount, refund claims may be denied, and you may receive a letter from the department specifying the overdue tax amount. If you find yourself in this scenario, go over all of your documentation and recalculate your tax liability and refund. File a rectification to support your claim if the figures you entered in the returns form are valid. If your ITR is discovered to be erroneous, you must pay the outstanding tax sought by the department within the time frame specified in the notice in order to get your refund.

 

Extended due dates of Income Tax Return and Tax Audit

4. Mistakes in ITR:

Your refund will be delayed if you select the incorrect ITR form, misspell important personal details, or provide incorrect information. Income tax refunds are now solely granted electronically, according to the tax department’s new method, which implies that refunds are credited directly to the taxpayer’s bank accounts. If the bank account number entered on the tax form is wrong, reimbursements will be delayed until the error is addressed. If you make this mistake, you can update your bank account information on the income tax department’s website. It is critical that you provide a bank account that is linked to a permanent account number.

If there are discrepancies between the data you provided last year and what you did this year, an IT official will extensively examine your records to see if you need to submit further information. You may receive a request from the IT department to provide additional information.

5. Income or tax amount mismatch:

If there is a discrepancy in income from different sources, the refund process may be delayed. This usually occurs when the information on Form 16 does not match the TDS information on Form 26 AS. When an ITR cannot be completed because of a proposed adjustment under section 143(1)(a) or because it is defective under section 139, the refund is also delayed (9). To ensure that your refund request is met, you will need to file an amended return.

6. Prevalidating the bank account:

The bank account must be prevalidated in order to get an income tax refund. You can access profile settings by going to the income tax department’s website and logging in with your PAN and password. You can easily find a prevalidation option for your bank account. Pre-validation will be done directly using an electronic verification code (EVC) and net-banking route if your bank is integrated with the e-filing portal. Your bank account number, IFSC code, mobile number, and email address associated with that account must all be provided.

It’s worth noting that if you make a mistake on your ITR and the department sends you a communication, you’ll only get it if you provided accurate communication information.

Save your Taxes via Hindu Undivided Family (HUF)

Save your Taxes via Hindu Undivided Family (HUF)

What is HUF?

1. Under Hindu Law, a HUF is a family which consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. A HUF cannot be created under a contract, it is created automatically in a Hindu Family. Jain and Sikh families even though are not governed by the Hindu Law, but are treated as HUF under the Act.

2. Hindu Undivided Family (‘HUF’) is treated as a ‘person’ under section 2(31) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act). HUF is a separate entity for the purpose of assessment under the Act.

Who can be KARTA?

1. Senior most MALE co-parcener of the HUF: The Karta is the senior-most male coparcener of the HUF. Even if the Karta becomes aged, infirm, ailing, or even a leper, he may continue to be Karta. Where the senior-most member is not Karta, the next senior male member takes over as Karta.

2. A Junior Coparcener can be Karta The Supreme Court is held that only if the senior-most member gives up his right, a junior coparcener can become Karta of the HUF, with the consent of all other members.

3. There can be more than one KARTA of a HUF :

4. Only Co-parcener can become Karta: The Supreme Court held that co-partnership is a necessary qualification for the managership of a joint Hindu family.

5. Minor as Karta: In absence of the father, the elder minor son could act as the Karta of the family. Therefore, a minor can be the managing member of a Hindu undivided family

Powers of KARTA
  • Managing the affairs of HUF
  • Control & become custodian of the finances
  • Can borrow money for & on behalf of HUF
  • Spend the money for the family & not be accountable for it
  • NOT liable to submit an account to anybody
  • Can make partition of the family suo moto
  • Quantum of partition shall be with KARTA’s liking
  • HUF cannot enter into contracts, or form a partnership firm, or representation except through Karta, however, Karta may allow others to represent HUF
  • Can Gift away the movable properties of HUF for natural love & affection but within a reasonable limit
  • May transfer immovable properties for pious purposes or for the benefit of the family

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o Position of Female in HUF

After the amendment made by Hindu Succession (Amendment) Act, 2005, the daughter can be a coparcener of HUF like the sons of HUF. After her marriage, she becomes a member of her husband’s HUF and continues to be a coparcener of her father’s family. she can also dispose of her share in coparcenary property at her own will.

If a Hindu dies, the coparcener property shall be allotted to the daughter as is allotted to sons. If a female coparcener dies before partition, then children of such coparcener would be eligible for allotment, assuming a partition had taken place immediately before her demise. A widow of a pre-deceased son even though remarried is now eligible for a share in property as the legal heir of the pre-deceased son of the family.

o Female as Karta

W.e.f. 6th September 2005, after amendments made by Hindu Succession (Amendment) Act, 2005 the daughter of a coparcener shall by birth become a coparcener in her own right in the same manner as the son.

Powers of Alienation

The power of alienation cannot be exercised except by Karta the joint family property can be alienated for the following three purposes only:

a. Legal necessity (Apatkale)

b. Benefit of the estate of the family (Kutumbarthe)

c. Acts of Indispensable duty (Dharmamarthe)

GST collections for September at Rs 1.17 lakh crore

o Position of Karta

The Karta can alienate the joint family property with the consent of the coparceners even if none of the above exceptional cases exist and if all the coparceners are adult, the alienation is binding on the entire joint family.

Legal Necessity (Apatkale)—

The cases of legal necessity can be so numerous and varied.

Some of the instances of a necessity maybe

  • outstanding revenue dues,
  • ancestral debts,
  • marriage expenses,
  • discharge of outstanding decrees,
  • personal necessities arising from poverty,
  • sickness, incapacity for work, etc., legal expense in defending estate,
  • litigation to protect estate, etc..

Property sold and mortgaged for an unlawful purpose and immoral purposes cannot be said to be legal necessity.

The benefit of Estate–

It includes anything which is done for the positive benefit of the joint family property.

Indispensable Duties –

This term implies the performance of those acts, which are religious, pious, or charitable.

How is HUF taxed?

HUF has its own PAN and files a separate tax return. A separate joint Hindu family business is created since it has an entity separate from its members.

  • Deductions under section 80 and other exemptions can be claimed by the HUF in its income tax return.

  • HUF can take an insurance policy on the life of its members.

  • HUF can pay a salary to its members if they contribute to its functioning of the HUF. This salary expense can be deducted from the income of HUF.

  • Investments can be made from HUF’s income. Any returns from these investments are taxable in the hands of the HUF.

  • A HUF is taxed at the same rates as an individual.

Both HUF and Karta in an Individual capacity (as well as other members of the HUF) can claim a deduction under section 80C. Furthermore, the income of the HUF can be invested by the HUF and will continue to be taxed in the hands of the HUF.