It is that time of the year when everyone is starting to talk about Income Tax and how it is eating into their take home salary. Most of the Salaried Individuals in our country do not put too much thought into their Taxes. They just let their employer deduct "TDS" and are content to live with whatever take home salary they get. Did you know that the Government gives us numerous options using which we can legally reduce our tax liability?
The purpose of this article is to outline those options.
Do I Have To Pay Tax on my ENTIRE ANNUAL INCOME?
NO. NOT AT ALL...Yes, you read it right. Not all your income is taxed. The government has many provisions by which you can reduce your Taxable Income which in turn reduces your tax liability.
What are these Provisions?
These provisions fall into two categories: Deductions and Exemptions
Deductions From Income:
As per our tax laws, there are certain deductions that are allowed on the income earned by an individual. These amounts can be subtracted while arriving upon the net taxable salary of an individual. For ex: If your total salary is 5 lakhs and the deductions that we are going to cover in this section total up to 1.5 lakhs, your net taxable income will be only 3.5 lakhs.
Those Deductions are:
1. House Rent Allowance or HRA
2. Leave Travel Allowance or LTA
3. Medical Allowance
4. Transportation Allowance
5. Interest Paid on Housing Loan
Exemptions From Income:
Just like the various deductions that we covered in the previous section, the Indian Tax Laws allow many exemptions that help the tax payer reduce his tax liability. These exemptions are categorized as sections with numbers followed by alphabets to help us identify them easily.
Those Exemptions are:
1. Section 80C - Exemptions for Qualified Investments
2. Section 80D - Exemptions for Medical Insurance
3. Section 80DD - Medical Treatment of a Physically Disabled Dependent
4. Section 80DDB - Medical Treatment of Self/Dependents for Major Diseases:
5. Section 80E - Exemption for Education Loan Repayment
6. Section 80U - Exemption for Disabled Tax Payers:
7. Section 80G - Exemptions for Charitable Donations
8. Section 80CCG - Exemption for Investing in Rajiv Gandhi Equity Savings Scheme "RGESS"
9. Section 80TTA - Exemption for Interest Income Earned from Savings Accounts
10. Section 80GG - Exemption for Individuals Living in Rented Houses
11. Section 80GGC - Donations Made to Political Parties
As you can see, there are numerous Deductions and Exemptions that you can use to reduce your Income Tax Liability every year. I recently published a book that clearly explains all of these deductions and exemptions in great detail. The book also has a "Life Stage Based Tax Saving Portfolio" that can help you retire as a "CROREPATI".
Click Here for details on how to purchase the book
Happy Tax Saving and Best Wishes on retiring as a CROREPATI!!!