Taxes are unavoidable and can eat into your hard-earned money. Protect your income from tax with timely preparation with 8 tips in this post. Keep reading.
Income tax is the harsh reality you must face each year as you see your money disappearing. While they are essential for a country’s development, they can cause a financial burden on you which can sometimes be too tough to bear.
Especially with challenging times thanks to COVID and the subsequent job losses, people are looking at innovative ways to cut corners and prepare for the tough times.
Tax-saving can help you save a considerable amount of money. We bring 8 ways to have more in your purse than to pay in taxes.
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1. Overhaul Old Investments
Save income tax by foregoing the older investments with newer investments. Once the lock-in periods of the previous investments are over, use the same amount as the primary investment in new tax-saving plans. This is especially true for 5-year Fixed deposits where the returns are fixed.
2. Investing in the Right Scheme
Some investment schemes are the best way to combat tax liability. Choosing the right kind of scheme can not only grow your capital but also help you save tax. Some of the most popular investment and saving plans that let you save tax under section 80C include –
- National Pension Scheme (NPS)
- Public Provident Fund (PPF)
- Employee Provident Fund (EPF)
- Fixed Deposits (Lock-in period of 5 years)
- ELSS Funds
3. Invest in a Health Insurance Policy
Health insurance provides double protection – to your health and to your money too. Firstly, despite having an employer’s health insurance buy another personal health plan. This won’t let you be without health insurance cover while changing jobs. Secondly, premiums paid for health insurance are eligible for tax exemption under the Income Tax Act, Section 80D. In addition to the deduction of Rs. 25000 for the premium paid for self, spouse & children, an additional deduction of up to Rs. 50000 comes for parents above 60 years of age.
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4. Philanthropic Donations
Donate to philanthropic institutions for availing tax deductions under Section 80G. Different institutions receive varied exemptions under the relief funds or donations category.
5. Claiming Tax Rebate on for Education Expenses
Apart from availing rebates on health insurance plans, the education expenses are also liable to get tax concessions. Parents can claim a tax deduction of up to Rs. 1.5 lakh under the provision of Section 80C of the Income Tax Act for their children’s paid tuition fee.
6. Selecting Suitable Salary Structure
Salaried individuals can select appropriate salary structures, from the given options, for maximized tax benefits across every income tax slab. Some of the suggestions are –
- If staying in a rented house, then pick the component of House Rent Allowance (HRA)
- Put contributions in Voluntary Provident Fund for additional tax deductions
- Avail deductions on conveyance or Leave Travel Allowance (LTA)
7. Buy an Insurance Policy
Pick a suitable insurance plan and enjoy the double benefits. Be it a term insurance plan, a money-back policy, an endowment plan, or an annuity plan, these will help in saving tax under Section 80C up to 1.5 lakhs. Furthermore, the amount received by the family after the policyholder’s death is exempted from tax under Section 10D.
8. Filing Income Tax Timely
Timely filing of income tax is a simple yet effective way to prevent costly penalties across every income tax slab. The habit of timeliness further sets the path of keeping meticulous tax records for future verifications, references, or applications at the time of availing loans or conducting high-value transactions.
It is important to pay income tax. However, save your hard-earned money with astute tax planning. Save and invest wisely to enjoy financial fitness during tough times, along with paying less in taxes.
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