Budget 2018: Worried about income tax? Here's how you can save it
Paying income tax and filing income tax returns is our duty and responsibility to contribute towards building and maintaining country’s public infrastructure and facilities
Income tax is the unfortunate reality of income. If given a choice, most of us wouldn’t want to pay tax on the income we earn. But we should, because the income tax we pay is an important source of revenue for the government. As citizens of India, we are also consumers of the country’s public infrastructure and facilities. When we want these facilities and infrastructure to improve, it is also our duty and responsibility to contribute towards building and maintaining it. Paying income tax and filing income tax returns is one way of doing that.
We should fulfill this duty with pride because the income tax payers form a very small part of the Indian population. Government data for AY 2014-15 shows that only around 1.5 percent of Indians pay income tax. This is because India is a developing country and 93 percent of Indian households earn less than Rs 2.5 lakh annually, which is the minimum threshold limit for income to be taxable. Furthermore, agricultural income is entirely exempt from tax even when it crosses this Rs 2.5 lakh limit. Hence, anyone who earns a taxable income should be proud to be a part of the tax-paying population and should dutifully fulfill this responsibility.
While the government expects you to pay income tax, it also allows you to legally save on income tax. You don’t have to pay income tax if you earn less than Rs 2.5 lakh in a year. Income more than that is taxed as per different slabs, with the tax rates going up with increase in income. No matter how much taxable income you earn, there are certain exemptions and deductions available to all individual and HUF taxpayers that can be used to pay less income tax.
Tax saving options in India
The most popular tax-saving options available to individuals and HUFs in India are under Section 80C of the Income Tax Act. Section 80C includes various investments and expenses that can be used to claim deductions. The Section 80C limit is Rs 1.5 lakh in a financial year, which means that you can use this entire amount to reduce your taxable income.
Saving tax beyond Section 80C
Apart from the deductions available under Section 80C, there are various other Section 80 deductions that can also be claimed to save on income tax. These deductions include health insurance premiums, tax benefits on home loans,
Another way to save tax is by creating a Hindu Undivided Family (HUF). An HUF can be created by married Hindu individuals. An HUF would include the creator, who is called Karta, and his or her family members. The advantage of an HUF is that you can split your income between two entities–yourself as an individual taxpayer and the HUF. This way, you can avail the same tax-saving deductions twice.
How to plan your tax-saving investments for the year
The best time to start planning your tax-saving investments is at the beginning of the financial year. Most taxpayers procrastinate till the last quarter of the year, and end up taking hurried decisions. Instead, if you plan at the start of the year, you can make investments that can also help you fulfill your long-term goals. Tax-saving investments should be used to build wealth as well, not only to just save tax.
Use the following pointers to plan your tax-saving for the year:
Check the tax-saving expenses that you’re already making that you can claim. This includes expenses like insurance premium, children’s tuition fees, etc
Deduct this amount from ₹1.5 lakh to figure out how much to invest. The entire amount doesn’t need to be invested if expenses are covering it.
Choose tax-saving investments on the basis of your goals and profile. ELSS funds, PPF, NPS and fixed deposits are some of the popular options.
This way, you can figure out how much you need to invest to save taxes. It is best to begin investing in the first quarter of the financial year so that you can spread the investments over the year. Doing this won’t burden you at the end of the year and will also allow you to make informed investment decisions.
(This article was first published in ClearTax. You can access it here.)
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