How to save income tax?

It is extremely painful to see your hard-earned money get deducted in taxes, the good use it is put to notwithstanding.  A financially prudent taxpayer in the country must make use of all legally accepted options available to him to save taxes. This guide attempts to provide a quick lowdown on how you can do.

See also: Income tax on savings bank interest: Calculation, taxed interest and benefits

Be aware of the various ways your income is being taxed

The tax department taxed your income under the following 5 heads:

• Income from salary

• Income from house property

• Income from profits and gain of business or profession

• Income from capital gains

• Income from other sources

The Indian Income Tax Act provides for chargeability of tax on the total income of a person on an annual basis. The quantum of tax determined as per the statutory provisions is payable as:

• Advance Tax
• Self-Assessment Tax
• Tax Deducted at Source (TDS)
• Tax Collected at Source
• Tax on Regular Assessment

see also about: form 13 income tax

Be aware of the available tax saving instruments

For several investments and expenses, the government offer you some relaxation in taxes.

List of tax saving instruments

Life insurance

Health insurance

ULIPs

New Pension Scheme

Equity-linked Tax Saving Scheme (ELSS)

Public Provident Fund or PPF

National Saving Certificates or NSC

Infrastructure Bonds

Sukanya Samridhi Yojana

Senior Citizen saving Scheme

Fixed Deposit

Home Loan

know about: annual information statement income tax

List of main sections offering income tax deduction 

Section 80C

Section 80CCC

Section 80CCD

Section 80D

Section 80DDB

Section 80E

Section 80EE

Section80EEA

Section 80RRB

Section 80TTA

Section 80U

Section 24

Prepare in advance

Tax deductions are available against these instruments only if your able to give the documentary proof of the investment. This means you have to first make the expenses in advance and then maintain a documentary trail of the same for tax saving purposes.

Like things simpler? Go for the new tax regime

Under the new tax regime, taxpayers are not offered any tax exemptions unlike the old regime. Those who don’t want to get into the whole task of first making those investments and then arranging all the documentary proofs to claim tax deductions must opt for the simpler new tax regime. That way, you are not spending your money twice without making any gains whatsoever.

Paying rent to parents? You can claim HRA

Those staying with their family members can claim HRA tax deductions under Section 10 (13A) of the Income Tax Act if they actually pay rent to these family members and are able to provide a proof of the same. But, be aware that the rent payment your family receives from you will be counted as their income under the head Income from House Property and will be taxed accordingly. The landlord will also have to disclose the rental income in his ITR.

Earning rental income? Save in taxes

Not all your rental income is taxable.

From the rent received/receivable for the property, you are allowed to deduct the municipal taxes payable for the property. As the rent is taxable on accrual basis, the law allows you to claim deduction for the rent which you have not been able to realise, subject to the fulfilment of certain conditions. After deducting the above two items, what you get is the annual value, from which you are allowed a standard deduction of 30% of the annual value, to cover the expense for repairs, etc.

Note that the deduction of 30% is a standard deduction, irrespective of whether you have actually incurred any expenditure for repairs or renovation for the property, during the year under review.

Also, in case you have borrowed any money for purchase, construction, repair/renovation of a rental property, you are allowed to claim deduction for the interest payable on money borrowed. The money can be borrowed from any person and not necessarily as a home loan. There is no restriction on the amount of interest which you can claim against your rental income.

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