Last Minute tax Planning: How to save tax legally in 6 most effective ways
Certain Deductions which can be claimed to save tax at time of filling of Income Tax Return allowed by “The Income Tax Act” for all classes of Taxpayers (i.e. Salaried Individual, Professionals, Businessman etc).
If an individual has done proper Tax Planning to save tax, such deductions would be subtracted from the gross total income and income tax would be levied on the balance income as per the income tax slabs in force.
6 Most Effective Ways to Save Tax
1) Save Tax Under Section 80C, 80CCC & 80CCD
The Govt allows certain deductions provided the amount saved is invested as specified in Section 80C, Section 80CCC and Section 80CCD. The maximum combined deduction allowed under these 3 sections is Rs. 1,50,000.
There are many instruments which are specified by the Govt through which tax planning can be done and these investments can be claimed as a deduction to save tax. The most popular instruments for investing for the purpose to tax planning to save tax are –
*5 Years Tax Saving Fixed Deposit
*Equity Oriented Mutual Fund
*Contribution to Employee Provided Fund
*Life Insurance Policy
*National Saving Certificate (NSC)
An additional deduction of Rs.50,000 under section 80CCD has also been introduced for investment in National Pension Scheme(NPS). This additional deduction has been introduced vide Finance Act,2015.
2) Save Tax Under Section 80D, 80DD & 80DDB
The Income Tax Act also allows for deductions to save tax if the expenditure has been made by the taxpayer for insuring his own health of his relatives. Different amount of deductions are allowed under each of these sections which help in tax saving depending on the type of insurance policy which is as follows:-
*Section 80D : Medical Insurance Premium of Self/Spouse/Children
*Section 80DD: Medical Treatment of Handicapped Dependents
*Section 80DDB: Treatment of Specified Diseases
3) Tax Planning through Home Loan
If you have taking a Home Loan, you are allowed to claim deduction for repayment of principal amount of home loan under section 80C.
Moreover, you are also allowed to claim deduction of interest paid on home loan under section 24. The maximum deduction allowed in some cases is Rs. 2,00,000 and in some cases there is no maximum limit of claiming this deduction for payment of interest on Home Loan.
4) Save Tax through Education Load under section 80E
If a taxpayer has taken an education loan for the higher education of himself or spouse or children or th student of whom he is legal guardian, he claim deduction under section 80E and save taxes.
This deduction is only allowed for the repayment of ineterest and not for the repayment of principal amount of education loan. There is no maximum limit for claiming deduction under section for the repayment of interest on education loan. Deduction under section 80E is only available for individual taxpayers and not to HUF.
5) Tax Planning under section 80CCG
A taxpayer having annual income of less than Rs. 12 lakh p.a. is allowed an deduction under section 80CCG for investing in Shares of specified companies and specified Mutual Funds. This deduction is called “The Rajiv Gandhi Equity Saving Scheme”.
This deduction is only available to first time investors and those who ahve earlier invested in share/mutual funds are not eligible for to make use of this deduction.
6) Income Tax Deductions for donations Under Section 80G
If a taxpayer makes a donation for charity, social or philanthropic purpose or makes a contribution towards National Relief Fund, then this donation can be claimed as a deduction under section 80G of the Income Tax Act. The Finance Ministry has pre-specified the organisations to which the taxpayer can make the donations and education allowed depends on the purpose for which the donation has been made.
In some Cases, 100% of the donation made is allowed to be claimed as a deduction where as in certain cases only 50% of donation made is allowed for the purpose of saving taxes.
Donations made in kind are not allowed to be deducted. Only the deductions made through cash and cheque are allowed to be deducted. For deductions made through cash, only Rs.10,000 would be allowed to be claimed as a deduction and for claiming deductions above Rs.10,000, the taxpayer would have to make the donation through cheque.