Once you start earning, paying income tax becomes a significant part of your financial responsibilities. Paying your income tax can also help you better align your finances.
But for most people, paying income tax isn’t something they look forward to. After all, why would one be looking forward to giving away a part of their hard-earned income? This may be how several people think. However, remember that paying taxes, direct as well as indirect, may be helping you contribute to the growth of the nation.
That being said, finding ways to save taxes may be on most taxpayers’ minds all year round. This may be especially true for young professionals who may be in their first income tax paying cycle. They may be browsing for income tax calculators to figure out better ways to organise their finances so they may be able to save taxes.
Filing ITR can be a tedious process if you are not prepared well. To be prepared, it is recommended that you plan your finances in advance and have a clear idea of how you will save taxes.
Let’s take a look at some of the common ways you may be able to save taxes.
- HRA (House Rent Allowance)
If you are renting a house, you may be able to claim a tax exemption on the same. Of the following, you are required to deduct the lowest:
- HRA component of your salary paid by your employer
- 50% of the basic salary plus DA for metro cities (Mumbai, Chennai, Kolkata, New Delhi) or 40% of the basic salary plus DA if residing elsewhere
- The rent you pay for your house minus 10% of your basic salary inclusive of the DA
- LTA (Leave Travel Allowance)
LTA (Leave Travel Allowance) is permitted only for travel within India. You can claim LTA for the trips taken within the country with your family. Only the shortest distance journey fare is allowed to be claimed for LTA.
- Medical Insurance
Under Section 80D, a salaried employee can claim an exemption if they have medical insurance coverage. If you buy a medical insurance policy, i.e., a Mediclaim or any sort of health insurance, the premiums you pay on these will be exempt from tax. There is a limit to how much amount is tax-exempt, so you may want to check these restrictions before you plan your policy purchase.
- Home Loan
If you are currently repaying a home loan, you can claim it as a tax exemption. This loan must be acquired to either purchase a property, or build, repair, or renovate a house. Exemptions of up to Rs. 1,50,000 per year are allowed for home loan repayments. An income tax calculator can help you get a better idea of how your home loan repayments may be able to earn you tax exemptions.
- Charity and Donations
If you are donating a part of your income to any charitable organisations that are registered, you may avail of tax exemptions on these donations. Organisations like NGOs may be eligible for the same. However, it is advisable to check with the organisations whether you would be able to claim donations made to them. Similarly, donating to political parties can also earn you tax exemptions.
If you earn from sources other than your salary, you need to be aware of advance tax. This is a sort of tax that you pay as you earn, or in advance. This is usually applicable if your taxation liabilities are more than Rs. 10,000.
Advance tax helps you reduce the burden of paying taxes altogether. It allows you to divide your tax liabilities and pay them in parts in the same year that you earn. If you think you are eligible to pay advance tax, it is recommended that you consult your tax advisor and figure out whether and how are you required to pay your advance tax.
Filing ITR is an important part of your financial management. Planning your expenses and investments can help you create a suitable plan for saving your taxes. The aforementioned are some of the ways you can use to earn tax exemptions. As a salaried individual, you should look into planning your finances well if you are looking to save as much tax as possible.