If Your Tax Amount is High, Go for the Tax Saving Investments and Plans
With great power comes a great responsibility. When a person starts earning, they have more responsibilities and commitments to fulfill in their life in their social and personal life. Among many social responsibilities, taxes are a significant factor that a person has to abide as soon as they start earning. Even if they try to avoid it, they cannot, but there are certain ways that help them to reduce the burden of paying the tax amount.
Avoid paying penalty
The deadline for e-filing the income tax returns are on July 31st of each year. The Income tax department charge penalties if the taxpayer fails to file their income tax return before the specified time period. So it is advisable that the taxpayer pays their returns before the due date to avoid the fines and penalties.
Check the form before submitting: One of the tedious and time consuming processes in the income tax is the tax returns. If the income tax returns are not filed properly, the Income tax department will send a notice regarding the defective form and modify the changes that have to be made and send back the correct tax return form. To avoid these issues, the taxpayer must collect all the required documents and papers and this will reduce have the pressure of the taxpayer. They must also visit the official website of the Income tax department to see if there are any changes or modifications made in accordance with the financial budget for that particular year.
Generally, in the initial stage of working the millennial generation will not have taxable income. The people whose annual income is below two lakh fifty thousand they need not file the tax return. But the tax experts advise that filing the tax return has more benefits, out of which the main aspects is that, they will not get any refund on the TDS deducted if they fail to file the tax return.
It is always advisable to obtain tax saving investments in the initial days of the year, rather than waiting till the end of the year. Because in the end of the year, if the human resource department asks for the expense and investment proofs, the taxpayer will have a lot of pressure while attempting to save the taxes. Before planning the investment the taxpayer has to check with the benefits and advantages of investing in the plan because a poor expense or bad investment will not benefit in reducing the tax amount.
Since the taxpayers are in their initial stage of working and are young, they can invest in a long term savings scheme like the Equity linked savings scheme (ELSS) because only these equity funds can reduce the burden during the inflation.
Plans your investment
Apart from the ELSS, there are many tax saving schemes available that will help in reducing the tax to some extent.
Public Provident Fund (PPF): The tradition and preferred tax saving plan is the PPF. It is a retirement plan with a long-term tax saving investment. One lakh fifty thousand is the maximum amount of investment that is allowed in this plan. The main advantage of this provident fund is that the interest amount received from the plan and the income received after the maturity of the plan are both exempt from tax.
Fixed Deposit (FD): Another tax saving plan that is famous among the public is the FD, and the interest rates depend on the banks or the post office in which the taxpayer wishes to invest. The maximum exemption allowed in this plan is one lakh fifty thousand rupees and the minimum duration is five years. But the interest income and the maturity amount that is received from the scheme are taxable.
Employee Provident Fund (EPF): Using the EPF, the maximum amount the taxpayer can save is one lakh fifty thousand rupees. According to this scheme, twelve percent of the taxpayer’s basic salary is deducted and the remaining twelve percent is offered by the employer. The income received from the maturity of the plan is exempt from tax.
National Savings Certificate (NSC): The Indian Post office offers the tax saving scheme called the NSC, which has five years of the lock period. Even though the interest income received from the plan is taxable, they guarantee that the maturity amount received from the scheme is free from tax.
Unit Linked Insurance Plan (ULIP): The ULIP has a unique feature in which the plan is a combination of the insurance and investment plan. It is taxed saving amount allowed by this plan is one lakh and fifty thousand rupees and the premium paid by the taxpayer is split between the insurance and the investment. The amount received after the maturity of the scheme is tax free.
Life Insurance: One of the famous tax saving investment plans, according to the Income Tax Act under section 80C is the Life insurance plan. In a financial year, the taxpayer is given a maximum deduction of one lakh fifty thousand rupees and the income received at the end of the plan is exempt from tax. And if the premium holder is dead, even then the tax is exempt from the maturity income. The life insurance plan helps a person even during the unforeseen events that happens in a person’s life, apart from being a tax saving investment.
Sukanya Samriddhi Yojana: The main aspect or specialty of this plan is that, the account under this plan can be opened only under the name of a girl by her parents or guardians. The account can be opened anytime from the birth of the child until she attains the age of ten years. The Sukanya Samriddhi Yojana account is valid until twenty one years of the girl. According to the Income tax Act under Section 80C, one lakh and fifty thousand rupees can be claimed each year. And the maturity amount received from the plan is exempt from the tax.
Using these tax saving plans, the taxpayer can reduce the amount that they pay as tax and apart from that these plans help them in their future or during the times when they are in need of money.
Other ways to reduce tax liability
Restructuring the Salary: The Salary restructuring is not possible unless the company or the entity allows. The taxpayer must be in good terms with the human resource department of their company to use the restructuring of salary. The process of restructuring the salary is considered as a step in the tax saving investment. These can be done by selecting the food coupons given by the company rather than the lunch allowances because they are tax free for a meal that cost fifty rupees. To reduce the tax liabilities the taxpayer can also include their transport allowances, medical expenses, uniform expenses, telephone expenses and educational expenses as a part of their income. To reduce the prerequisite tax, the taxpayer can use the company vehicle rather than driving their car.
Apart from the tax saving schemes and plans under section 80C of the Income tax Act, it allows a deduction of one lakh rupees in the investment schemes. If the taxpayer pay’s the tuition fees for a maximum of two children, the tax liability decreases for them. There are also Section D and Section G under the Income tax Act which reduces the tax liability to an extent. According to Section D, the taxpayer can deduct fifteen thousand for the medical insurance for their spouse, children and themselves. And if the taxpayer’s parents are above age sixty five, they can deduct twenty thousand for the medical plan. Section G allows the donation to any charitable institutions or specified funds.
Home rent allowance: According to the Section 80GG under the Income tax Act, the taxpayers who are paying their house rent, but did not receive their HRA can claim twenty five percent of their overall income or two thousand rupees each month or the excess of rent paid over ten percent of their overall income. But these claims are not possible if the taxpayer’s spouse or minor child owns an accommodation in the place where they live or perform their official duties.
Incase if the HRA is part of their income, then they can avail exemption from the HRA the taxpayer receives from their employer, or fifty percent of their basic salary in metro and forty percent of the basic salary in non-metro. Also the rent paid by the taxpayer for the house minus ten percent from their salary.
Housing Loans: The housing loan taken by the taxpayer can help them in saving the tax because the principal of the home loan is under the Section 80C in the Income tax Act which offers a deduction of one lakh and according to the Section 24 under the Income tax Act, the interest portion allows a deduction of one lakh and fifty thousand rupees.
LT (Leave Travel) Allowance: The LT allowances are available twice in a block of 4 years, but if they are not able to claim the benefits within the block year, they can carry the journey to the succeeding block and claim it during the initial period of the year. So they are allowed for three exemptions in a block.
Bonus: A bonus received by the taxpayer from their boss is taxable in the year they receive the amount but they can request the employer if they can push the bonus amount for the subsequent year or produce the tax investment information well in advance so that the employer will not deduct the tax on bonus.
These precautions and steps can help the millennial to reduce the tax liabilities. And they can also seek the help of the tax experts and agents to help them cut the cost of paying taxes.