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How do I minimize my tax this year?

dateKnowledge Centre Team dateOctober 15, 2020 views66 Views 4 Minute Read

Your gross taxable income is calculated by adding the income from all sources. Then the tax deductions and House Rent Allowance or Leave Travel Allowance or any other exempted allowances are subtracted. The net result is the taxable income. You can save tax on this amount by claiming deductions under specific sections of the Income Tax Act of 1961.

The most extensive section is Section 80C. This entails all the investments that qualify for deductions as well as the amount of deductions that can be claimed to minimize tax. Deductions up to Rs. 1.5 lakh are available if you chose to opt for:

1. Equity Linked Savings Scheme

2. Senior Citizen Savings Scheme

3. Term Life Insurance Premium

4. Public Public Provident Fund

5. Home loan repayment

6. Tuition Fees

7. Tax saving FDs

8. National Savings Certificate

9. National Pension System

Life insurance is one of the best investments under this section. The number of accidental deaths or terminal illnesses are on the rise. Good medical care comes with exorbitant hospital expenses as well. As per the latest reports by India Spend, 988 million Indians still do not have life insurance. Thus the government has given tax benefits to nudge people towards opting for it. The Canara HSBC Life Insurance’s iSelect+ Term Plan offers one of the best protection plans including death and terminal illness cover. It offers special rates and discounts for women and non tobacco users. It also allows the coverage to be extended to accidental death and disability.

You can also opt for deductions upto Rs 1 lakh under Section 80D. This covers contributions to medical insurance premium bought for oneself, husband/wife, children or parents. These exemptions are over and above the claims made under Section 80C. Hindu Undivided Families (HUF) and individuals are both eligible to make claims under this section.

The other option is to claim a deduction of upto Rs. 10,000 earned on your interest income. This can be through a savings bank account, savings bank account with a co-operative society and interest on savings bank account with a post office. You are eligible through Section 80TTA of the Income Tax Act, 1961.

Contributing to charitable organizations can also help you minimize tax under Section 80G. Cash donations exceeding Rs. 2,000 are not eligible for tax deduction and the contribution must be made using a different mode of payment to claim the tax relief. Section 80GGC allows deductions to any person except local authority and every artificial juridical person for any amount of contribution made by him, in the previous year, to a political party except in cash.

While the above sections were universally applicable to all individuals, you can claim tax deductions only under special circumstances. Under Section 80E, if you have taken an educational loan for yourself, spouse or children, you can claim the interest on the loan as tax deduction.

For salaried individuals living on rent, House Rent Allowance which is a part of your salary can be claimed to minimize tax under Section 80GG. In case, your salary does not have an HRA component then the rent paid on any accommodation used for living purposes can be claimed as a tax deduction under this section.

Section 80DDB has provisions allowing persons living with a disability or any family member suffering from a disability to claim deductions under this section. If you are suffering from a specific ailment as listed in Section 80DDB then you can claim deduction for the amount spent on medical expenses used for treatment at any private or government hospital. It is important to present a certificate of the disease while making the claim.

Section 80U provides tax relief for individuals certified to be at least 40% disables as certified by relevant medical authorities according to government rules. These disabilities include blindness, low vision, leprosy-cured, hearing impairment, locomotor disability, mental retardation or mental illness. Deduction upto Rs. 75,000 can be claimed for moderate disabilities and upto Rs. 1,25,000 for severe disabilities.

Thus, depending on your individual needs, you must choose the correct tax saving device while also taking into account the levels of risk, liquidity, lock in period as well as ensuring adequate returns. Make the best use of the tax saving mechanisms provided by the government and a well planned investment goes a long way in maintaining your financial health.

Hi, I am Gajendra Kothari, a Chartered Financial Analyst and the Managing Director of a leading wealth management firm based out of Mumbai. With over 15 years of work experience to both Indian & overseas capital markets, I strive to create financial Independence amongst the youth of the country, by joining hands with Canara HSBC Life Insurance Company.

In this video I will tackle an often asked question by almost everyone- How do I minimize my taxes

This year, we have two income tax regimes. While the older regime maintains status quo, the new regime will have lower tax slab but with no deductions allowed.

  • One should be able to calculate all the tax deductions you are going to utilize this year and after the calculation you can decide whether you want to go for the old regime or you want to go for the new regime.
  • In order to minimize tax burden we would strongly recommend initiate this exercise at the beginning of the year rather than leaving it for the last moment.
  • If you are a salaried individual then you would have an overall idea that how much would be your salary in this financial year so you can input these numbers into the tax calculator and arrive at your calculation.
  • The first and biggest one is section 80C under which any individual can save up to 1.5 lakh rupees per annum.
  • Under section 80C you get many investment avenues where you can claim deductions like employee provident Fund, Public Provident Fund, NPS, home loans, ELSS and insurance offered by many insurance companies.
  • Not many people are aware that Government of India has started NPS or New Pension Scheme which is spent for your Retirement where under section 80CCD(1B) you can save up to 50,000 rupees into this scheme. Now if you are in highest tax bracket you can straight away save 30% or up to 15,000 rupees in this product.
  • One should have a separate family floater health insurance scheme even though you may be provided health insurance under employer’s group insurance scheme. The reason is being is that tomorrow if you are in between jobs or if the employer decides to remove the policy or downsize it then you may be left in a lurch.
  • If you have your own insurance policy then you will be able to build on that and tomorrow if there is any complications you always have a second or standby option available to you.
  • One main reason why you should go for a health insurance is that the government of India gives you tax benefits.
  • Under section 80D you can claim up to rupees 25,000 for your family’s insurance which covers yourself, your spouse and your children.
  • Now if you are paying health insurance premium for your parents as well you can claim separate 25,000 rupees for this purpose and the golden tip is if your parents are senior citizens then deduction goes all the way up to Rs. 50,000 per financial year.
  • Let’s talk about another very important section which section 80E under which you can claim tax benefits on paying the interest for your education loan and the benefit is that entire interest paid for education loan per annum is tax free.
  • Under Section 80G: Contributions made to notified trusts relief funds and charitable institutions are eligible for tax deductions. These tax deductions can range from 25%, 50% and all the way up to 100% depending up to the institutions which are eligible under this tax benefit.

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