The fee that the government imposes on its citizens is referred to as Income Tax. This money is used by the government to pay its employees, fund its debts and carry out its programmes. There are certain ways to reduce the income tax or also to help you get a tax refund or a deduction. People usually start thinking of tax exemptions and deductions only when it is time for them to fill their tax returns. But by then it would be too late. So it is advisable to prepare for it early. Here are a few steps to reduce your income tax payment:

1. The most basic rule to save tax is to keep track of all your spending. Save your receipts. Make a note of what each one was for and keep all of them. You never know when they will come in handy.

2. Take loans. Instead of spending 10 lakhs on a house, you can take a loan and invest your 10 lakhs in a long-term non-taxable venture. Both the primary loan amount as well as the interest on your loan will reflect as deductible expenses and can be used to reduce your total income when you file your returns. A maximum of Rs 1, 50,000 can be deducted from the interest on the house loan according to the Income Tax Amendment Act of 1961.

3. Carry forward your losses. If you lose some money, you can carry it forward to your next financial year so that you can deduct it from your income and thus reduce your tax. You can carry forward losses for three years. However, you need to make sure that you have all the relevant documents specifying the expenses and losses incurred while filing your tax returns.

4. Donating can also be an ideal way to save tax. While filing your return, donations will come under expenses and hence can be deducted. According to section 80 G of the Income Tax Amendment Act of 1961, 100% of the donations are non-taxable.

5. Instead of giving children (above the age of 14) some pocket money, you can put them on a payroll. Any money that you pay your children as salary will be listed under expenses and hence will be negated from your income. You just need to have an employment letter showing that your child/spouse is employed under a registered company that belongs to you. As long as your child?s earnings come under the standard deduction which is Rs 30,000, then he or she will be exempted from taxes. Giving away gifts each year will help save on inheritance tax as well.

6. There are certain notified funds according to section 80C These include the Public Provident Fund and also the National Savings Certificate which is a saving scheme of the Post Office Invest in non-taxable schemes and investments. For instance, open an IRA account. These might be long term but they pay rich dividends.

7. If someone in your family is ill and dependent on you, the medical expenses will be a lot. But you can minimize your tax by getting the medical expenses deducted from your returns. This will be some respite for the huge expenses borne. The first step is to get a medical insurance. Rs 50,000 of the primary amount is non-taxable according to Section 80 DD but it can go up to Rs 75,000 if the disability is severe. The amount varies according to the age of the person, the illness, the stage of the illness and how the person is related to the insured. All medical bills and files should be preserved as you may need to provide them when required.

8. According to Section 80 GG, Rs 2000 per month or 25% of the gross salary (whichever is less) can be deducted from any house rent which is in excess of 10% of your income. This applies in cases where no HRA is received.

9. File your returns on time. Filing them late will mean that you will have to pay penalties. Filing early will also help you get your refunds quickly.

A lot of people end up paying huge amounts of taxes as they are not aware of the laws which govern them. If one is well versed in the various deductions and exemptions of the Income Tax Amendment Act, a lot of money can be saved. However, not everyone will be up to date and familiar with the rules of each tax revision. It is difficult for us to know all these ways, so consulting a chartered accountant or a tax attorney would be a good idea.