How To Save on Income Tax? – 10 Best Steps.

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A lot of people consider taxation as money spent; some even view it as money wasted on dead projects the government undertakes. However, there is a brighter side of taxation that can end up becoming an income as opposed to expenditure. If you plan your taxes well, you can save money, which translates to money earned. This can be done by knowing the possible reasons that can lead to you being put under income tax scrutiny, which can lead to a number of issues being unearthed, that usually does not end well.
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Saving on Income tax through declaration of sources of income

The basic measure is to ensure that you have included all your sources of income as you file your income tax returns (ITR). If your taxes are paid for by your employer, it is still safe for you to ensure you include this in as much as there is no tax liability that comes with this, since deductions such as 80c will have been made. This is majorly applicable if your gross taxable income is above Rs 250,000, you must file a tax return before the last day of July which is the deadline. Failure to do so leads to penalties.  To know your gross income, take your total earnings and deduct exemptions such as HRA, LTA and any conveyance that has been claimed. Avoid claiming exemptions beyond the allowed limit.

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You should be aware that any income earned from fixed deposit and recurring deposits qualifies to be taxed. If you fall within 20 percent or 30 percent taxable group, you are required to pay the extra tax, despite your bank having deducted the 10 percent. If the money you have saved in the bank earns an annual interest of above Rs 10,000 the bank is charged with the duty of deducting TDS (Tax Deducted at Source). This will show in your Form 26AS.

You must ensure you report money earned from life insurance that has matured yet not qualified for taxation.     if you earn any income through businesses such as Short Term Capital Gains out of selling stock, mutual funds or bonds that are not taxable, with one year of purchase. These profits attract a 15 percent tax in case you have paid Securities Transaction Tax. In case you do not pay Securities Transaction Tax, then Short term Capital Gains is subject to income tax. If you trade stock frequently, the profits will be treated as business income and not Short term Capital Gains. You need to know that Long Term Capital Gains and Dividend Incomes are free from tax.  If you experience short term capital loss within 8 years, it should be offset against STCG or LTCG.

If you receive income in cash, it is safe to keep records of such income. These can be documented in the form of bills or receipts you have received from spending such money.

Saving on income tax from property

If your second home is a source of income, it has to be declared. Even if it is not rented, it is safe to declare it. In case you own the property with another person, the income must be declared as per the ration of ownership. You are allowed to deduct 30 percent of the rental income for maintenance and agency. If you occupy the property, you are allowed up to Rs 2 lakhs deductions on loan interest payment and loan processing fees. If you have rented out the property, you are allowed to deduct full interest pain on loan. If you own the house jointly, both owners are allowed to claim the deductions.

If you are a first time property owner, you are allowed to claim a deduction of up to Rs 1 lakh on the interest if the value of the income does not go beyond Rs 40 lakhs. You are allowed a deduction of up to Rs 150,000 on cash basis of accounting on housing loan principal repayment. If you own the property with your spouse, both of you can claim the deduction.

If you sell an immovable property of value of up to Rs 50 lakhs except agricultural land, the buyer is allowed to deduct a compulsory one percent of TDS of the whole transaction amount which he can pay online. You are supposed to get a Form 16B from the buyer as proof of tax liability.

If you sell a property, a Short Term Capital Gain tax will be applied in relation to your income tax slap, within three years. If the transaction is over three years, Long Term Capital Gain applies; you can avoid this by investing in another house, tax exemption bonds or capital gain account scheme with a bank. If you deposit money under CGAS, you must use it to buy another house within two years or use it to build another house within three years of the sale. Going the CGAS way as a means to save on taxation is not easy since a lot of details are required.

Saving on income tax if you are self employed

If you run a business, you are allowed to claim deductions from all expenses directly from the business. Examples of such expenses include rent, office supplies, Internet bills, monthly telephone bills, repairs, travel expenses (domestic and foreign) meals and entertainment. Health bills also fall in this category. You can also claim deductions from expenses on mobile and car, whether personal or for the business.

In line with taxation slabs, you are allowed deductions on depreciation for cars, furniture, property electronics and so on. If you have an office at home, you can claim 30 percent on phone bills, electricity and proportion of the rent. If you have expenses that go beyond Rs 20,000, you should pay using an Accounts Payee cheque. If you have paid TDS, you can claim deduction on other payments such as fees and salaries paid to other people.

Saving on income tax through foreign income

First, it is good for you to know whether you are a nonresident under the IT act or non-resident Indian under Fema. You must declare money earned from outside the country or property that is outside the country. If you are a PIO/ OCI resident, you must declare your passport details. As an expatriate in India, you do not have to declare your foreign assets. If you qualify for Double Taxation Avoidance Agreement (DTAA), you must declare it, along with it you must produce tax registration certificate.

Important documents that will allow you save on taxes

For your tax deductions by your employer, you need form 16A. Form 26AS will should a breakdown of all your TDS’ and advance tax. It also shows your self-assessment tax or regular assessment tax deposited in banks. To avoid TDS deductions, you must submit form 15G/ 15H at the bank if you think your FD/ RD will not go past Rs 10,000. Form 15H is reserved for senior citizens. Your bank or your property registrar submits your annual information return to the income tax department to help them know your high value deposit, bonds and stocks, credit card transactions and so on.

The danger of not declaring these things is falling into scrutiny. The problem of being under scrutiny is you may be required to match you annual information returns with your physical records, which is never easy. Be save, declare.