SMART TAX PLANNING: 5 POPULAR DEDUCTIONS THAT COULD SAVE YOU MONEY |
Posted: August 21, 2020 |
Smart Tax Planning Everybody likes to save money wherever it is possible. However, the money you earn gets taxed whether you like it or not. There is a saying that death and taxes are inevitable. We do not know about death, but some amount of your payable tax can surely be avoided. Recently, the Government introduced an alternative tax structure where the rates were reduced but all tax-saving deductions are completely removed. If you look at the deductions which are allowed under the old tax structure, you would realize that these deductions provide double benefits. Confused between the two tax structures? Click here for more information about the two structures. We are sure that if you make an effort to use the deductions, you will not only reduce your tax bill but will also gain something for the future. So, optimize your personal income tax plan. Here is a simple post that explains 5 deductions you can avail to cut your tax burden. Legally!!! Gross Taxable Income (GTI) is your yearly income. Tax is charged on this amount. If you use deductibles then this GTI reduces. Hence, your actual total tax is reduced.1. Highest Tax Saving Under Section 80CHighest Tax SavingsThe most in-demand way of tax saving is Section 80C. Under Section 80C you can avail a maximum reduction of ?1.5 Lakhs from your Gross Taxable Income (GTI). This means that if you have an annual GTI of ?6 Lakhs and if you use only this deduction, you will be taxed on ?4.5 Lakhs and not your entire GTI of ?6 Lakhs. The list of options for availing 80C deduction of ?1.5 Lakhs from your GTI:
Pro-tip – If you pay more than ?1.5 Lakhs annually as school fees, then use the entire amount as deductible under Section 80C. Here is a Child Education Tax deduction Calculator from the Income Tax Department. 2. National Pension Scheme under Section 80CCDNational Pension SchemeNational Pension Scheme (NPS) is a central government scheme where anyone (except armed forces) can start a pension account for their retirement. In this scheme, funds are invested in equity investments in the initial years. After each year, this equity investment portion is reduced and transferred to safer investments. This means, NPS is deductible under section 80C also where the max limit is ?1.5 Lakhs. An additional deduction of ?50,000 in NPS is allowed for NPS holders. Pro-Tip – You may think that NPS can only be deducted under section 80C. But there is an additional deduction up to ?50,000 in NPS (Tier I Account) under subsection 80CCD(1B). 3. Health Insurance Premiums under Section 80DHealth Insurance Premium DeductionThe premium amounts you pay for health insurance are deductible under Section 80D up to an amount of ?25,000 for yourself, your spouse and your children. An additional amount of ?25,000 for your parents’ health insurance is deductible. In case your parents are senior citizens, then this amount becomes ?50,000. If your total health insurance premium does not add up to the limit. Then you can claim a deductible of ?5,000 as preventive health check-up costs. Imp Note- Medical Treatment of a disabled person (40% or more but less than 80%) is deductible up to ?75,000. Similarly, medical treatment of a severely disabled person (80% or more) is deductible up to ?1,25,000. 4. Rents Paid Under Section 80GG (if you do not receive HRA from employer)Deductible RentYou can apply for this deduction from your GTI only if you do NOT receive any House Rent Allowance from your employer. The amount deductible is the least of the following:
Imp Note- The amount which you can deduct from your GTI is the lowest of the above three. Here is the Income Tax Departments Site for Calculating House Rent Allowance Deduction. 5. Easiest deduction under section 80TTA – Interest on savings accountsEasiest Deduction on Savings AccountThe easiest deductible is the interest you earn on your savings account. The max amount is ?10,000. This means the interest you earn up to ?10,000 is deducted from your GTI. However, if you earn ?15,000 then you can deduct only ?10,000 and the rest ?5,000 is taxable. You do not have to do anything to avail this. In your ITR it is categorised as income from other sources. It is deductible under section 80TTA.
We are assuming that you opt for the old tax structure and only then you can use these above-mentioned deductions. If you choose the new tax structure then your personal income tax plan takes a turn for the worst as you can not apply for deductions and their benefits. The old tax regime incentivized taxpayers for saving and investing for their own good. Click here to know more and use a calculator to see which tax structure is better. You owe it to yourself to use these deductions for your income tax planning. Your personal tax planning must be improved so you can benefit from the reduced tax bill and enjoy additional benefits from various investments and savings scheme that earn you some return.
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