Tax Saving Schemes
I have actually seen people making faces while paying taxes. I still remember a businessman who approached me many years ago and said “I don’t want to pay tax, please draft my financial statements accordingly.” He also wanted all the bills to be arranged to support his windrow dressed financial statements. There is also a large group of people who believe that an individual in service can never save tax and unwillingly has to bear with taxes. This article is for all those people who wish to save their tax but are unaware of the various legal ways of doing so.
The most common tax saving choices in India are PPF, Sukanya Samriddhi Scheme, NPS, NSC, term plans, ELSS (equity linked saving scheme). All these above mentioned alternatives are eligible for tax deduction under section 80C. But, not everybody is aware that tax saving choices are also available beyond the scope of 80 C. These options are as follows:
Rent paid is allowed as tax saving option. But there are lot of individuals who live in their parental house and has HRA (house rent allowance) as one of the component of their salary. For them, HRA is completely taxable. However, they can still get a tax exemption, if they start paying rent to their parents. This is a legal option as legally and financially, an individual is separate entity from his/ her parents. In this case, as well, you should get receipt of rent paid from your parents and also need to attach a copy of your parents PAN card if the rent paid (as per receipts) is more than Rs. 1 lakh in a financial year.
Tax exemption for employees not covered under HRA
There are many employees who do not have HRA as one of their salary components. Such employees can still enjoy tax exemption on rent paid by them for a maximum of Rs. 2,000 per month under section 80 G. in order to avail benefit under this section, you should be salaried, should not have HRA as a salary component and you or even your spouse should not have a house in the city you are living on rent.
Acquisition of house property
You can acquire house property in a different city from that of your job location and can start staying in a rented accommodation. This will give you multiple benefits. One, you will get tax exemption on the rent paid. Two, you can claim tax exemption on the principal repayment and interest paid on home loan (from which the new house property has been acquired in different city/ district).
Jointly borrow a home loan
If you are married and both of you are working and are planning to purchase a house by borrowing home loan then it is better if you borrow jointly as it will double your tax benefit. Individually you can claim a maximum deduction of Rs. 2 lakhs on the interest paid on home loan. However, if you have borrowed jointly, then both husband and wife can individually get tax deduction of maximum of Rs. 1.5 lakhs which collectively amounts to Rs. 3 lakhs.
Using the capital loss
This cannot be a case with each and every individual. However, there are people who out of unfavourable circumstances are forced to sell their capital assets at a loss. Such individuals can get a benefit of using this capital loss in saving taxes. Any sort of capital gains (short term or long term) are added to the taxable income of an individual. Any capital loss means negative value and therefore, when added to the capital gains will result in the reduction of the total capital gains which in turn results in reduced tax liability.
Gift to your non-earnings parents
If your parents are non-earning and you earned interest from fixed income instruments like fixed deposit, recurring deposit, Kisan Vikas Patra, NSC then you can save your taxes on this income by gifting it to your parents. This income will not be taxable in their hands as it will be a gift to them by their blood relation.
Deduction under section 80 DDB
If you are taking care of a dependent who is suffering from a serious illness, then you can claim an additional tax deduction under section 80DDB up to a maximum of Rs. 40,000. However, if this person is a senior citizen, then the amount of deduction would be Rs. 60,000 and for a dependent with serious illness who is above 80 years, the amount is Rs. 80,000. Such dependent member can be your spouse, children, siblings or parents.
Just like these, there are so many ways of reducing you tax burden. The only need is to act smartly and rationally with knowledge.