Taxes are viewed as a financial burden, and if you don’t have the basic knowledge about tax planning, it could add more stress to it. A majority of Indian taxpayers struggle when it comes to income tax saving plans. However, it is not that tough, the income tax act of India provides deductions on various investments and expenses. You can take advantage of it to save on income tax returns.

What is income tax?

An income tax is a tax imposed by the government on the income earned by individuals and businesses. The income tax rate is calculated based on the income earned during a given tax year, which is typically the calendar year. The amount of tax owed is determined by the individual or business’s tax bracket, which is based on the amount of income earned.

In India, income tax is governed by the income tax act, of 1961. The act lays down the rules for the taxation of income earned by individuals, Hindu Undivided Families (HUFs), partnership firms, companies, and other entities. The income tax India act also lays down the rules for the computation of income, tax liability, and the procedure for filing income tax returns. The tax is collected by the Central Board of Direct Taxes (CBDT) under the Department of Revenue, Ministry of Finance, Government of India.

In general, income tax return is used to fund government programs and services, such as education, healthcare, infrastructure, and national defense.

What are the income tax slab rates?

In India, the income tax is levied on the basis of the income tax slabs, and the slab rate is decided by the government every year. It is important for individuals and businesses to stay up-to-date on changes to tax laws and to file their taxes correctly and on time in order to avoid penalties and fines.

What do you mean by section 80c of income tax act?

Section 80c of income tax act is a clause that refers to various investments and expenditures that are deducted from income tax. Under this section, you are allowed to get up to Rs.1.5 lakh income tax deduction per annum.

What are the five types of income?

The five major types of income sources are – 

• Your salary.
• Income generated from your property.
• Income from your business.
• Income from capital gains.
• Other sources.

What are tax saving mutual funds?

A tax-saving mutual fund is just like a regular mutual fund but with the added benefit of a tax-saving option. These mutual funds allow you to get the income tax deductions benefits of section 80C of the income tax act. You can find the best tax-saving mutual funds here.

What is HRA and how to calculate it?

HRA stands for House rent allowance. It is part of your salary provided by your employer for expenses related to rented accommodation. In metro cities, the HRA is 50% of your basic salary, and in other cities, it is 40% of your basic salary.

Under section 10(13A) along with rule 2A of the income tax act, 1961, you can only apply for an HRA exemption if you are living in a rented apartment.

Why income tax return filing is important?

Making income tax payments is important for several reasons:

• It is a legal requirement: 

Not filing income tax is a violation of the law and can result in penalties, fines, and even criminal charges.

• It funds government services: 

Income tax is used to fund government programs and services, such as education, healthcare, infrastructure, and national defense. These services benefit the entire community and help to promote the general welfare of the country.

• It promotes fairness and equality: 

The income tax rules are designed to be progressive, which means that those who earn more pay a higher percentage of their income in taxes. This helps to redistribute wealth and promote fairness and equality among citizens.

• It helps to stabilize the economy: 

Income tax revenue helps the government to maintain a stable and healthy economy by funding public spending and controlling inflation.

• It promotes social and economic development: 

The government uses the revenue generated from income tax to promote social and economic development by investing in education, healthcare, infrastructure, and other key sectors.

• It helps to reduce the fiscal deficit: 

The revenue generated from income tax helps the government to reduce its fiscal deficit and maintain the overall financial stability of the country.

In conclusion, paying income tax is important as it is a legal requirement, it funds government services, promotes fairness and equality, stabilizes the economy, promotes social and economic development, and helps to reduce the fiscal deficit.

What are the best tax saving options in India?

Here are some of the best tax saving options discussed below:

• Invest in Agricultural land: 

Income from agricultural land is considered a tax saving investment option in India.

• Invest in Government tax saving bonds: 

Government bonds issued by the Rural Electrification Corporation (REC) or National Highway Authority of India (NHAI) come with tax benefits under Section 80CCF of income tax act.

• Invest in startup companies: 

Investing in startup companies can qualify for tax benefits under Section 80-IAC of the Income Tax Act.

• Invest in socially responsible equity funds: 

Some tax saving equity funds that focus on socially responsible investments, such as those in renewable energy or clean technology, may qualify for tax benefits.

• Set up a charitable trust: 

Setting up a charitable trust can be a good income tax saving option, it can provide tax benefits, such as deductions for donations made to the trust.

• Make donations to political parties: 

Under section 80GGC any donation made towards political parties is considered tax saving donations.

• Invest in Infrastructure Bonds: 

Investing in infrastructure bonds is one of the best tax saving investments. It offers you benefits under Section 80CCF of income tax act.

• Consider a long-term capital gain (LTCG) tax-free bond: 

Some bonds may be classified as LTCG tax savings bonds, which means the interest earned is tax-free.

• Make contributions to Atal Pension Yojana (APY): 

Contributions made to Atal Pension Yojana are eligible for tax saving exemptions under section 80CCD(1B)

• Save tax with NPS (National Pension System): 

Contributions made to the National Pension System are eligible for tax exemptions under section 80CCD(1) of income tax act.

It’s worth noting that some of the above tax saving methods may not be applicable for everyone and it’s important to consult with a tax professional or financial advisor to determine the best tax saving methods for your individual situation.

What are the easy ways to save income tax?

Some of the most common include: It’s important to consult with a tax professional or financial advisor to determine the best income tax saving options for your individual situation.

1. Maximize contributions to tax saving fixed deposit (80C)
2. Take advantage of tax deductions for housing loan interest (80C)
3. Invest in equity linked tax saving schemes (ELSS) (80C)
4. Invest in tax saving public provident fund (PPF) (80C)
5. Invest in National Pension System (NPS) (80C)
6. Take advantage of tax deductions for tuition fees (80C)
7. Take advantage of tax deductions for tax saving life insurance schemes (80C)
8. Take advantage of tax deductions for investments in sukanya samriddhi yojana (80C)
9. Take advantage of the national savings certificate tax deduction offer (NSC) (80C)
10. Take advantage of the tax liability of senior citizen saving scheme (80C)
11. Take advantage of tax deductions for investments in Unit-Linked tax saving insurance plans (ULIP) (80C)
12. Take advantage of saving tax through donations to charitable institutions (80G)
13. Take advantage of tax deductions for medical treatment of specified diseases (80D)
14. Take advantage of tax deductions for health insurance premiums (80D)
15. Take advantage of tax deductions for interest on education loans (80E)
16. Take advantage of tax deductions for investments in Infrastructure Bonds (80CCF)
17. Take advantage of tax deductions for investments in Rajiv Gandhi saving scheme tax exemption under section 80GGA
18. Take advantage of tax deductions for investments in National Pension System (NPS) (80CCD)
19. Take advantage of tax exemptions for agricultural income.
20. Take advantage of tax exemptions for income from house property owned by senior citizens.
21. Take advantage of tax exemptions for long-term capital gains on equity shares and tax saving sip mutual funds.
22. Take advantage of tax exemptions for long-term capital gains on immovable property.
23. Take advantage of income tax exemption for income from other sources.
24. Take advantage of tax exemptions on foreign income in India.
25. Take advantage of tax exemptions for income of non-resident Indians (NRIs)

What not to do while income tax filing?

• Do not omit any income: 

Be sure to report all sources of income, including self-employment income, rental income, and any income earned from investments while filing income tax returns.

• Don’t claim false deductions or credits: 

Do not claim a deduction in income tax that you are not entitled to, as this can result in a penalty or criminal prosecution.

• Don’t forget to sign and date the return: 

While income tax return filing, make sure to sign and date the return before submitting it, as an unsigned return will be rejected.

• Don’t file late: 

File your return before the income tax due date to avoid penalties and interest charges.

• Don’t neglect to keep records: 

Keep accurate records and receipts of all expenses you plan to claim as income tax deductions.

• Don’t use online software or preparer without checking their credentials: 

Use only reputable income tax calculator software or hire a qualified tax professional to ensure your return is accurate and complete.

• Don’t forget to check for mistakes:

 Review your personal income tax return carefully before submitting it to make sure there are no errors or mistakes.

It’s worth noting that some of the above may not be applicable for everyone and it’s important to consult with a tax professional or financial advisor to determine the best tax-saving strategies for your individual situation.

FAQs:

• How to file income tax return?

If you are comfortable with income tax e-filing, then go to the income tax department portal, create an account using your PAN card and you can file your income tax return from there. The process is discussed here. Otherwise, you can hire a professional and ask him/her to file income tax return for you.

• How to calculate income tax?

You can visit the government of India income tax calculator page, put your details and your payable income tax will be calculated immediately.

• How to check income tax refund status?

You can check your income tax refund status online, the steps are discussed below – 

• • Visit the income tax e filing portal.
  • Click on the Income Tax Return (ITR) Status option.
  • A new page will open. Now enter your acknowledgment number and your mobile number in their respective boxes. Then click Continue.
  • You will receive a 6-digit OTP on your registered mobile. Enter it and click Submit.
  • On successful verification, you can see your income tax refund status on the screen.

• What is TDS in income tax?

A TDS or Tax Deducted at Source, is an amount withdrawn from a payment when it is made, such as a salary, commission, rent, interest, professional fees, etc. Payers deduct tax at source, while those who receive payments/income are responsible for paying taxes.

• What is AIS in income tax?

An annual information statement (AIS) includes comprehensive information about a taxpayer presented on Form 26AS. Taxpayers may provide feedback about the information presented on AIS.

• What is standard deduction in income tax?

The standard deduction is a figure that can be deducted from your taxable income by the government. This figure reduces the amount of income you’re taxed on when you claim it on your tax return. It is adjusted for inflation every year and is based on the status of how you file income tax returns.

• How much tax can be saved?

The maximum tax you can save under 80c is Rs.1.5 lakh in a year. 

• How much tax can be saved on home loan?

Under section 80C, the maximum tax can be saved is Rs.1.5 lakh for housing loans in a financial year. Home Loan interest payments can be deducted up to Rs.2 lakh under section 24B of income tax act. Those who qualify for an additional 50,000 deduction under Section 80EE income tax act and who is servicing a home loan sanctioned between 1 April 2016 and 31 March 2017 can deduct an additional 50,000.

• How to avoid tax on savings account interest?

If the total interest income from your savings account is below Rs.10,000, then you won’t have to file any income tax return file for it.

• How much income is tax free?

Individuals earning up to Rs.2.5 lakh/year don’t need to file income tax returns. 

Disclaimer: I am not a certified financial adviser and this is not financial advice. The purpose of this article is to inform you about financial products and strategies. Consult your financial advisor before making any financial decisions.