August is here and one-third of this financial year is almost over. Most companies have started asking its employees to submit the supporting documents & proof’s for tax deductions and exemptions. Many of us are upset over how high the TDS amount is that gets deducted each month from our paycheck. The purpose of this article is to help you start planning for your taxes for this financial year…
Before we Begin – Why this Article:
A good friend of mine from the college days happened to chat with me on facebook who had found my book on Indian Income Tax useful. He was very happy over the fact that, the book helped him understand the many unknown aspects of our Indian Tax Laws which can help citizens save tax Legally. In fact he even quoted that by utilizing the various sections explained in the book, he was able to save Rs. 18,000/- Income Tax last year. So, I thought, why not remind our blog readers that it is time to start planning your Taxes so that you too can reduce your tax liability…
Saving Tax the Legal Way
The Indian Tax Laws are very simple and easy to understand. Though India is one among the countries with a high taxation rate, as citizens we also get a lot of options to reduce your tax liability. Most people are unaware of all these options and end up concealing their income to avoid taxes. If they knew all the options to save tax legally, I am pretty sure a big portion of people wont need to resort to illegal ways to reduce their taxes.
There are two major aspects of reducing our tax liability:
Utilizing 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:
- House Rent Allowance or HRA
- Leave Travel Allowance or LTA
- Medical Allowance
- Transportation Allowance
- Interest Paid on Housing Loan
Utilizing 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:
- Section 80C - Exemptions for Qualified Investments
- Section 80D - Exemptions for Medical Insurance
- Section 80DD - Medical Treatment of a Physically Disabled Dependent
- Section 80DDB - Medical Treatment of Self/Dependents for Major Diseases:
- Section 80E - Exemption for Education Loan Repayment
- Section 80U - Exemption for Disabled Tax Payers:
- Section 80G - Exemptions for Charitable Donations
- Section 80CCG - Exemption for Investing in Rajiv Gandhi Equity Savings Scheme "RGESS"
- Section 80TTA - Exemption for Interest Income Earned from Savings Accounts
- Section 80GG - Exemption for Individuals Living in Rented Houses
- Section 80GGC - Donations Made to Political Parties
- Section 80CCD - Contribution to National Pension Scheme (NPS)
Each of these sections, be it the deductions or exemptions have a certain limit up to which we can avail our tax benefits. They also have some preconditions that we must satisfy in order to be eligible to utilize them. However, if we utilize all these sections, we can easily bring down our tax liability by a considerable amount.
If you want to learn more about these deductions and exemptions, you can buy my book on indian income tax. For the latest offer details Click Here
Some Last Words:
Yes, as citizens it is our duty and responsibility to pay our taxes properly. At the same time, the government also gives us the options to save our tax liability and there is absolutely nothing wrong in utilizing those options. Keeping black money or concealing our income to avoid taxes is ILLEGAL. But, utilizing tax saving options to reduce our tax liability is PERFECTLY LEGAL.
So, what are you waiting for???