For many people Income tax becomes challenging which could be because of many reasons. Therefore, it is important to do tax planning and to take expert advice over your Income Tax. Proper tax planning can help you in saving tax. In this blog we will discuss how proper tax planning can help you in saving tax.
What is Tax Planning in India?
So basically tax planning is understanding or analysing one’s financial situation from a tax efficiency point of view so as to plan one’s finances in the most optimized manner.
Tax planning helps taxpayers to make the best use of tax exemptions, deductions and benefits to minimize his tax liability every year.
Therefore individuals, businesses and organizations with the help of experts or by themselves do tax planning in order to get benefitted from the taxes paid on their annual income and profits.
What are Different Methods of Tax Planning?
Following are the types of Tax planning-
- Short term Planning of Income Tax- The tax planning in this method is done closer to the financial year and selecting the best investment method to save tax. However, at last moment people may make hasty decisions while filing ITR.
- Long Term Planning of Income Tax- Starting Tax Planning at the start of your financial year is known as long term tax planning.
- Purposive Planning of Income Tax- Purposes planning of Income tax means planning the taxes in order to avail benefits by taking right investment decisions through correct selection of investment, replacing the assets, business expansion, programme etc.
- Permissive Planning of Income Tax- This means Tax planning is done in order to avail tax concessions, deductions and other exemptions permitted under law.
Tips to Save Income Tax
Here we will discuss about Tips to save Income Tax and they are as follows-
- Tax Saving Through Interest Payment on Loan- The Central Government has annonces certain tax benefits if you are repaying some education loan, car loan, home loan and personal loan. There are some investments that are considered under section 80-C. Tax benefits are also provided to individuals if they are paying Life Insurance premium (LIC) or have subscription to units of Mutual Funds equity. This could turn out to be the best tax saving option if it is executed wisely.
- Buy a Health Insurance Policy- As per section 80D of the Income Tax Act, premium paid on health Insurance policies are allowed as deduction from total income. Benefit of upto 15000 could be availed. This is also a great option to save tax.
- Make a Donation- section 80 G of the Income Tax Act allows tax deductions, if contributions are made to a charitable trust or to Non Governmental organizations. This will not only help you to save tax but also brings some virtue.
- Equity Mutual Funds- Investing in Equity Mutual Funds also makes your profits 100% non taxable. However it is advisable not to sell their equity shares before 12 months or one year as income tax could incur on your profits.
- House Rent Allowance- If you are staying in a rented accommodation, then you can claim house rent allowance to save tax on house rent.
- Medical Bills- You can use the receipts of purchase of medicine which can benefit you in saving tax at the end of year. A specified amount is not taxable for you and your family.
- Daily Travel Allowance- You can also avail tax benefits from your company for conveyance. It will help you in saving tax on conveyance allowance. However, it is not required to submit any proof regarding the same.
How can you smoothen your tax benefit at the last minute
Following are the guidelines on how to save taxes at the last minute-
- Calculate- Calculate how much you need to invest. Consider various deductions for this that you are eligible for.
- The Right Product- If you make a rush, then you may end up making the wrong investment. Therefore always analyze tax saving investment products on parameters like liquidity, lock in, expected return, capital risk and taxation.
- Prepare a budget- It is always beneficial to make investment budget for a few months as last minute saving could put more strain on your finances.
Therefore, proper tax planning could also help you to save in your income tax. You can take assistance from financial experts like Chartered Accountants so that they can guide you in a better way on how to invest and where to invest in order to save income tax.
BIAT Consultants provide best financial assistance on how you can save income tax.