There is no way you can avoid paying income tax if you have a taxable income. But you can manage your taxes and reduce liability through proper planning.
How to pay less income tax? If you are a taxpayer, this one question must have come to you your mind, at least once. There is no way you can avoid paying income tax if you have a taxable income. But you can manage your taxes and reduce liability through proper planning.
Interestingly, tax-saving is linked to investments and expenses. In other words, the Income Tax rules allow exemption from paying taxes on certain investments and expenses. You can optimize tax-saving investments and expenses every year to reduce your tax liability.
Here’s a look at seven sure shot ways to reduce your tax liability:
1. Start planning and saving for your retirement.
If you plan to pay less tax every year, start planning and investing for your retirement now. Wondering, why?
The Income Tax rules allow a deduction up to Rs 1.5 lakh on certain investments. If you make the full investment in these options, then your taxable income will reduce by 1.5 lakh.
Your investment options for this benefit are schemes like PPF, NPS, EPF, Tax Saving FD etc.
Abhishek Soni, Co-founder and CEO, Tax2win.in, says: “Start Savings for your retirement which will also help in tax saving through investments in PPF, NPS, EPF, Tax Saving FD, etc. which is eligible for deduction under section 80C up to Rs. 1,50,000.”
2. Maintain a record of medical bills of your senior citizen parents and pay them online
Soni suggests you should keep records of medical bills of your senior citizen parents and pay such bills through online mode to get deduction u/s 80D up to Rs. 50,000.
3. Keep rent receipt and rent agreement for HRA benefit
If you are living in a rented accommodation keep rent receipts and rent agreement with you to claim HRA exemption to reduce your tax liability. You also need PAN of your landlord if your annual rent is above Rs 1 lakh.
4. Buy health insurance for yourself and your family
You should get a health insurance policy for yourself and your family members. This will help you claim the deduction of premium paid under sections 80C and 80D.
5. Invest in tax-saving MFs
You can also invest in various tax-saving Mutual funds(ELSS), which will help in getting returns on the invested amount as well as you are eligible for getting a deduction up to Rs 1,50,000 u/s 80C, Soni said.
However, you would be able to claim the deduction of the size of your investment in a tax-saving mutual fund scheme only if your investments in other schemes that qualify for deduction under Section80C is not Rs 1.5 lakh already.
Under Section80C, the total deduction that can be claimed in lieu of investment in all eligible schemes is Rs 1.5 lakh. Not more than that.
6. Invest in NPS
You can also invest in NPS and claim the additional deduction of Rs. 50,000 under section 80CCD(1B). This deduction is available in addition to section 80C deduction.
7. Ask your employer to contribute in NPS on your behalf
According to Soni, your employer can contribute to the NPS on your behalf. This is eligible for the additional deduction (up to 10% of Basic salary and DA).