Save money with tax planning: 5 tips to help reduce your tax liabilities
What Is Tax Planning?
At the cusp of another year, it’s highly probable that you have a new set of resolutions to pursue in 2023. If one of those resolutions is to save up more money this year, you’re not alone. However, this time around, why not look beyond the typical measures to save more and choose an alternative that has a double advantage — where you can save money as well as save taxes?
That’s right. Did you know that with the right tax planning strategy, you can reduce your tax liabilities and also save up more in the process? Here’s a closer look at some top tips that can help reduce your tax burden and also make the saver in you happy.
5 tips to save more money with tax planning
Check out some easy yet effective ways to reduce your tax liabilities with provisions offered in the Income Tax Act, of 1961, so you can have more money in your savings by the end of the year.
1. Use your home loan payments as tax deductibles
If you’re like most people, your financial wish list probably includes buying your dream home. To do this, you will likely avail a home loan. While a home loan can be seen as a financial burden, did you know that it can also help you save tax in two different ways? Here’s how.
The principal component of your home loan EMI is tax deductible from your total taxable income u/s 80C up to ₹1.5 lakhs per year
The interest component of your home loan EMI is tax deductible from your total taxable income u/s 24 up to ₹2 lakhs per year
2. Claim the deduction available on savings account interest
Already a diligent saver? In that case, you may have a savings account or two that offers interest at high rates. This interest that you earn on your savings is taxable under the Income Tax Act, 1961, at the slab rate applicable to you. That said, there’s some good news here — you can claim up to ₹10,000 of the interest earned as a deduction u/s 80TTA.
This is great news for savers because you get the advantage of earning passive interest on your savings account balance as well as the benefit of claiming tax deductions on a portion of the said interest.
3. Make use of deductions for preventive health checkups
With all the scare that the pandemic brought in and a generally rising awareness about the importance of health checkups, this is an added expense that most people have to account for now. But if you’ve gotten preventive health checkups done during the year, you can save tax on this expense!
Under section 80D, you can claim expenses of this nature as a deduction from the total taxable income to the extent of ₹5,000. This includes the cost of preventive health checkups done for yourself, your spouse, dependent children or parents. It is a part of the overall deduction allowed u/s 80D for the health insurance premiums.
4.Restructure your salary to your advantage
If you’re a salaried employee, there are many ways to save money with the right kind of tax planning. All you need to do is have your salary restructured to your advantage, so you can take advantage of various allowances such as the following:
House rent allowance (HRA)
Leave travel allowance (LTA)
Telephone reimbursement
Books and periodicals
Meal coupons
In addition to this, salaried taxpayers can also claim the standard deduction available u/s 16 of the Income Tax Act. The deduction available under this section is a flat sum of ₹50,000 or the total taxable income, whichever is lower.
5. Choose the right tax regime
Aside from claiming the right deductions, you also need to choose the right tax regime. The old tax system has higher tax rates but offered more deductions. The new tax regime, on the other hand, offers limited deductions but comes with lower tax rates.
Typically, if you have several investments and expenses that qualify for deductions under chapter VI-A, the old tax regime may be a better choice. On the other hand, if you do not have many deductible costs, the new tax regime, with its lower tax rates, may be suitable. You can always compute your tax liberty under each regime and make the right choice.
Conclusion
While not all of these tips may be applicable to you, you can certainly pick up the ones that will be useful to save taxes for your individual financial profile. Alternatively, you can also make use of the suggestions to actively plan your taxes in a more efficient manner this year.
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At the cusp of another year, it’s highly probable that you have a new set of resolutions to pursue in 2023. If one of those resolutions is to save up more money this year, you’re not alone. However, this time around, why not look beyond the typical measures to save more and choose an alternative that has a double advantage — where you can save money as well as save taxes?
That’s right. Did you know that with the right tax planning strategy, you can reduce your tax liabilities and also save up more in the process? Here’s a closer look at some top tips that can help reduce your tax burden and also make the saver in you happy.
5 tips to save more money with tax planning
Check out some easy yet effective ways to reduce your tax liabilities with provisions offered in the Income Tax Act, of 1961, so you can have more money in your savings by the end of the year.
1. Use your home loan payments as tax deductibles
If you’re like most people, your financial wish list probably includes buying your dream home. To do this, you will likely avail a home loan. While a home loan can be seen as a financial burden, did you know that it can also help you save tax in two different ways? Here’s how.
2. Claim the deduction available on savings account interest
Already a diligent saver? In that case, you may have a savings account or two that offers interest at high rates. This interest that you earn on your savings is taxable under the Income Tax Act, 1961, at the slab rate applicable to you. That said, there’s some good news here — you can claim up to ₹10,000 of the interest earned as a deduction u/s 80TTA.
This is great news for savers because you get the advantage of earning passive interest on your savings account balance as well as the benefit of claiming tax deductions on a portion of the said interest.
3. Make use of deductions for preventive health checkups
With all the scare that the pandemic brought in and a generally rising awareness about the importance of health checkups, this is an added expense that most people have to account for now. But if you’ve gotten preventive health checkups done during the year, you can save tax on this expense!
Under section 80D, you can claim expenses of this nature as a deduction from the total taxable income to the extent of ₹5,000. This includes the cost of preventive health checkups done for yourself, your spouse, dependent children or parents. It is a part of the overall deduction allowed u/s 80D for the health insurance premiums.
4.Restructure your salary to your advantage
If you’re a salaried employee, there are many ways to save money with the right kind of tax planning. All you need to do is have your salary restructured to your advantage, so you can take advantage of various allowances such as the following:
In addition to this, salaried taxpayers can also claim the standard deduction available u/s 16 of the Income Tax Act. The deduction available under this section is a flat sum of ₹50,000 or the total taxable income, whichever is lower.
5. Choose the right tax regime
Aside from claiming the right deductions, you also need to choose the right tax regime. The old tax system has higher tax rates but offered more deductions. The new tax regime, on the other hand, offers limited deductions but comes with lower tax rates.
Typically, if you have several investments and expenses that qualify for deductions under chapter VI-A, the old tax regime may be a better choice. On the other hand, if you do not have many deductible costs, the new tax regime, with its lower tax rates, may be suitable. You can always compute your tax liberty under each regime and make the right choice.
Conclusion
While not all of these tips may be applicable to you, you can certainly pick up the ones that will be useful to save taxes for your individual financial profile. Alternatively, you can also make use of the suggestions to actively plan your taxes in a more efficient manner this year.
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