Simple Ways to Save Tax

Tax, a word that worries most of us. Both the direct as well as indirect taxes are to be borne by the citizens of the country. When it comes to indirect taxes, we do not have any option and we end up paying them while purchasing or consuming different products and using various services. In case of direct taxes, all the taxpayers are responsible to pay tax on their income at applicable tax rates. Evading the tax liability is punishable by law. However, there are ways to manage it better and reduce the tax amount by lawfully adjusting the income or by asking for deduction or exemptions under various provisions of the Income Tax Act. 

Here are a few steps to reduce the tax liability:

Both the salaried employees as well as businessman can save tax. Salaried employees are perhaps the most suffered taxpayers. Businessman still have a few more ways to reduce tax, but the salaried class doesn’t have any choice. 

Salaried individuals-

1. If a salaried person has taken a hosing loan, he can claim interest on housing loan as a deduction under the head ‘Income from House building’ up to a maximum of Rs.2 lakh. (Section 24)

2. Senior citizens can avail a deduction up to Rs.50,000 for Interest against Bank Deposits. (Section 80TTB)

3. Deduction for donation given to Charitable organizations. Make sure that the organization is registered in the Income Tax Department and is eligible for 80G deduction before giving donation.

4. Long term Capital Gain can be saved up to Rs.1 lakh for Equity based Mutual Fund. Long term capital gains can be saved if investment is made in a new property or Capital Gains Tax Bond are purchased out of the gains from the property.

5. Deduction under section 80DD for any disabled spouse/children/parents.  These family members can be partially or totally disabled. Depending upon those criteria, the deduction ranges from Rs.75,000 to Rs.1,25,000 the Whereas under section 80U the taxpayer himself can claim a deduction for his/her own partial or total disability. Again, the claim is allowed from Rs.75,000 to Rs. 1,25,000.

6. A salaried person can invest in the following schemes. The maximum limit is Rs. 1.50 lakh(Section 80C and 80CCC)-

• compulsory contribution towards Provident Fund
• Voluntary contribution towards Provident Fund
• Contribution in Public Provident Fund
• Life Insurance Premium
• Equity linked saving scheme
• Principal amount payment towards home loan
• Stamp duty and registration charges for purchase of property
• Sukanya Samriddhi Yojna
• National Saving Certificate
• Senior citizen savings scheme
• Unit Linked Insurance Plan
• Tax Saving FD for 5 years

• Infrastructure bonds
• Payment towards annuity pension plans
• Tax savings Mutual Fund (ELSS)

7. You can claim additional deduction of Rs.50,000 towards contribution against NPS, over and above deduction u/s 80C. Contribution to Atal Pension Yojna is also eligible for deduction. (Section80CCD 1b)

8. Health Insurance Premium is allowable deduction under section 80D up to Rs. 25,000 for self, spouse and dependent children. Additional deduction of Rs.25,000 may be made if premium is paid for parents under 60 years of age. 

9. Employee’s contribution towards NPS under section 80CCD(1) is allowed to the extent of maximum of the following:

• 10% of salary in case when the taxpayer is employee.

• 20% of gross total income in case where the taxpayer is self-employed or
• Rs. 1.5 lakh under section 80C.

Businessmen

A businessman can claim all the above deductions. In addition to that, he can further save tax by taking the following steps:

• You can save tax by hiring your own family members or relatives as paid employees. You can pay salary up to Rs. 2,50,000 which shall not be taxed in his/her hand and at the same time you can claim the same amount as an allowable expense.
• By investing more in digital marketing, you can earn more and claim it as a deductible expenditure.
• Claim your vehicle running expenses, driver’s salary, mobile and telephone bills and other utility bills as allowable expenses.
• If you book travelling and accommodation expenses in the name of the firm, it is allowed as a business expenditure.
• Follow the TDS deduction rules properly while making payment to your supplier otherwise the same cannot be claimed as an expense. 
• Donate to an I-T approved organization and claim the amount as an expense.
• Depreciation 
• Note that there is a limit to digital transactions up to Rs. 20,000. Crossing this limit would make the transaction disallowable as an expense. 

Furthermore,

Link your Aadhar card and PAN card on or before June 30,2021. If they are not linked before this date, they would become useless and ‘inoperative’. The KYC status too shall become invalid. 

High TDS/TCS rates for ITRs non-filers have been prescribed via a newly inserted section 206AB. 

GST number and GST amount is a must in Invoice for claiming tax benefits under LTC Cash Voucher Scheme. 

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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