Planning your money right can help you save a lot that you otherwise end up paying as tax. If you take the right measures, you can reduce your taxable income, hence saving a lot more than usual. If you recently joined the tax-paying brigade or aren’t sure about where to look for tax savings, don’t worry! We have answers to all your questions related to tax savings.
Here are six tips that can help you save a lot of tax:
- Save tax on rent payment
If you’re living in rented accommodation, your employer is supposed to give you some part of this money as House Rent Allowance (HRA). If you stay with your parents, you can avail tax benefits under section 80GG by paying the monthly rent to them. You can claim the least of the following:
- 25 per cent of the total income or
- 2,000 per month or
- Excess of rent paid over 10 per cent of the total income
The HRA tax deduction limit has been increased from Rs. 24,000 to Rs. 60,000 in this Union Budget. However, this deduction isn’t available if you have a residential property in your name or in your spouse’s or child’s name.
- Pay less tax if you’ve an ailing dependant at home
Under section 80 DDB, you can get some tax benefits if you have an ill dependant at home. You get to avail a deduction of up to Rs. 80,000 for the medical treatment of a super senior citizen who’s at least 80 years old. If the person is between 60 and 80 years, it will be Rs. 60,000 and if the person is below 40 years, the exemption is Rs. 40,000. This deduction, however, is available for some specific illnesses and you can claim them only if the ailing person hasn’t filed for any such deduction separately.
- Invest in ELSS funds
Investing in ELSS funds is the most prudent way to reduce your taxable income. Because of their great potential and high liquidity, they are one of the most preferred investment options. If you’ve already fulfilled your KYC requirements, you’re eligible to invest online. Otherwise, you need to go through the KYC screening process first.
- Invest in ULIPs
ULIPs are something you can opt for as you get to avail the benefits of an insurance policy as well as an investment. Some of the ULIPs even cost less than direct Mutual Funds, and unlike ELSS funds, you can switch your corpus from equity to debt and vice versa. Since all insurance plans enjoy a tax exemption under Section 10 (10d), there’s no tax implication on the gains made from switching. Don’t forget to check the cost of the ULIP before investing.
- Restructure your salary
If you bear some expenses just because you’re working in a particular company, you can always ask your employer to restructure your pay. You can claim to avail various perks and allowances. All you need to do is give a proof of these expenses to avail a tax-free allowance. Some such allowances that fall under this category are:
- Medical treatment
- Telephone and mobile
- Books and magazines
Since these allowances are given according to your grade, you can’t ask for all of them. Your employer has the right to decide your eligibility for these.
- Leave travel allowance and medical expenses
Most employers give part of your salary as medical expenses. If you start collecting medical bills and produce them when needed, this allowance can become tax-free for you. The upper limit, however, for these expenses is Rs. 15,000 in a financial year. If you have any dependants, you can produce their medical bills as well. Similarly, depending on the HR policies of your company, you can also avail leave travel allowance that can be claimed if you go on a vacation. You need to produce the actual bills and receipts here as well.
Additional Reading: Your Income Tax Exemption Guide For The Financial Year 2016-17
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