Are you a salaried person or self-employed?
If YES, you have to file Income Tax Returns at the end of every year.
With the financial year, 2017-2018 has ended recently, you will definitely have to file Income Tax Returns or ITR.
Is It Mandatory to file ITR?
Of course it is…
Saving is also an option.
So, Would you like to save Income Tax and convert that into your savings? Then Read this article
Should you be liable to pay Income Tax this year, you can save some money by availing various exemptions and investing part of your earnings.
Here are the top ways to save Income Tax in India. You get exemptions for part of the earnings under Section 80C, Section 80CC and Section 80CCD of the Income Tax Act of India.
10 Best Tips to Save Income Tax in India
1. National Savings Certificates
National Savings Certificates (NSC) is the best way to invest some part of your income.
The scheme is operated by India Posts and you can buy NSC easily from any post office.
The amount you invest in NSC is exempt from Income Tax under Section 80C. Your money fetches 7.9 percent compounded interest that is calculated annually but paid upon maturity of five years.
2. Sukanya Samriddhi Yojana Account
Sukanya Samriddhi Yojana Account is a best tax saving option and it can be opened by any parent in the name of a minor female child.
Maximum investment is Rs.150,000 in SSY accounts. Your investments are exempt under Section 80C of the Income Tax Act.
Interest and capital earned on SSY accounts are also exempt from Income Tax in India.
An SSY account fetches an interest of 8.1 percent per annum. The amount can be withdrawn by the girl upon attaining the age of 21 years or after marriage at the age of 18 years.
SSY accounts can be opened at post offices or banks participating in the scheme. Only one account for every girl child is permitted.
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3. Public Provident Fund
Public Provident Fund (PPF) is the best tax saving scheme sponsored by the Indian government and available through various banks as well as India Post offices.
You can invest a maximum Rs.5,000 per month or Rs.60,000 per year in PPF accounts.
The amount you invest is exempt from Income Tax under Section 80C. Your money earns 7.6 percent compounded interest per annum.
The money, however, remains locked in for 15 years. Loan facility is available against PPF accounts from the third year and partial withdrawal of funds is allowed after seven years from the date of opening.
4. National Pension Scheme
National Pension Scheme (NPS) is sponsored by the Indian government and can be subscribed directly online or through your bank.
You can deposit a maximum of Rs.150,000 per year in NPS. This amount is exempt from taxes under Section 80CCD and the newly introduced Section 80CCE.
This is a great scheme for long-term investment. You can withdraw part of the money at the age of 60 years and buy an annuity product of choice.
The amount you invest gives you pension every month and helps build wealth for retirement.
5. Equity Linked Savings Schemes
Equity Linked Savings Schemes (ELSS), are also called Tax Saver Mutual Fund and available from various banks and Non-Banking Financial Companies (NBFCs) of India.
There are no limits for investing in ELSS funds. You have two options to invest in ELSS schemes:
One as Mutual Funds and other as Systematic Investment Plans (SIPs). Your investment remains locked in for three years.
However, they are very profitable since MFs and SIPs earn you enough money.
Further, investing in ELSS either as MFs or SIPs gives you tax exemption up to Rs.150,000 under Section 80C of income tax act
However, check with the MF and SIP provider for further Income Tax savings and benefits.
6. Indian Government Bonds
Contrary to popular belief, Indian government bonds are not for large investors only. Anyone with a minimum of Rs.100 can deposit in these bonds which offer savings on Income Tax.
Depending upon the amount of money you invest and type of bond, you can save Income Tax under various sections of the Income Tax Act.
These include Section 80C, Section 80CC, Section 80CCD, Section 80CCE and Section 80CCF.
Bonds can be bought directly through your Dematerialized (Demat) bank account or through your bank, or an NBFC.
Bonds are issued in Demat form only and come with various lock-in options. They also provide excellent wealth building options.
7. Health Insurance
Buying a health insurance for family and yourself entitles you to exemption from Income Tax payments under Section 80D.
The total amount of premium you paid during the financial year for the health insurance will be deducted from your taxable salary.
However, not all health insurance or medical insurance plans offer tax savings benefits.
Therefore, it is advisable to invest in health or medical insurance schemes that come with the tax savings benefit.
8. Life Insurance
The amount of premium you pay for life insurance every year is also deducted while calculating Income Tax on your earnings.
This facility is available under Section 80C provided the amount of premium you have paid is up to Rs.150,000 during the financial year.
There are some additional provisions for tax exemptions on life insurance premiums too but they can vary according to policies and the number of life covers you hold.
9. House Rent
If you are staying in a rented house, keep the receipts and bank records. Under Section 80CG, house rent you pay during the financial year is deducted from your annual income while calculating Income Tax.
However, you have to support your claim for Income Tax exemption under this clause by providing relevant documents such as rent agreement, receipts and bank records.
You can get these documents from the landlord or take a receipt from them if you have paid cash. This way can also help you to save income tax in India.
10. Education Fees
Married couples with children can get additional exemptions under Section 80C when paying Income Tax.
School and education fees paid up to maximum Rs.150,000 during the financial year for a maximum of two children per Income Taxpayer will be deducted from your total income.
This clause is particularly useful for working couples, where both spouses are liable to pay Income Tax.
The benefit can be claimed by one of the spouses only while other can invest in tax savings products.
If you are the sole earning member of the family, this clause will further reduce your Income Tax liability and save money.
Other Ways to Save Income Tax
Some loans also allow you to save Income Tax in India. However, in such loans, the tax benefit is available only for the principal amount or the interest.
If you have a housing loan, the total amount of money paid as the principal amount in your Equated Monthly Installments (EMI).
The amount you paid during the financial year will be deducted from your net earnings for tax calculation purposes.
The clause is applicable under Section 80C and applicable for principle amount repayments up to a maximum of Rs.150,000. Interest paid does not attract tax exemptions.
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Under Section 80E you can avail Income Tax exemption for interest paid on education loans.
To claim this benefit, you will have to get a statement of interest that the bank, NBFC or other lender has collected during a financial year.
Understanding Income Tax Returns
Remember to include all these investments and expenses before filing your Income Tax Returns for the financial year 2017-2018 and in future.
All Indian citizens are required to ITR, regardless whether they are liable or not to pay Income Tax.
Filing an ITR is easy and can be done online directly with the Income Tax Department, through online agencies, with the help of a Chartered Accountant or other authorized service providers. You can also visit the Income Tax office and file your ITR.
Getting a verified Income Tax certificate is essential. It helps you while applying for a passport and other important documents from various ministries and departments of the Central and state governments.
An ITR also helps avoid the risk of getting into trouble with the law for tax suspected tax evasion.
Documents Needed for ITR
To file ITR, you will need the following documents:
- Aadhar Card.
- Permanent Account Number (PAN).
- Bank Account Statements showing income and expenses.
- Statement of Investments including proof.
- Rent and education fee receipts.
Tax Deduction at Source
If your employer is deducting Income Tax before paying the salary, ask for the TDS form. The form will show how much money your employer will pay the Income Tax Department for this financial year.
Calculate your Income Tax on basis of investments made, expenses and loans. You can ask the Income Tax Department to refund the extra amount collected by the employer by claiming tax exemptions.
Thanks to the Internet, you can now file Income Tax Returns online.
However, ensure that you have all necessary documents and documentary proof of every earning an investment made during the financial year.
A lot of online Income Tax saving calculators are available for free. You can use these resources to calculate the amount of Income Tax you have to pay.
Seeking advice from a financial consultant or Chartered Accountant can also help you save more taxes.
They charge some fee but can provide valuable advice to save much more money.