Monday, May 28, 2018

How to Save Tax in FY 2018-19

Paying taxes is important keeping in mind the country’s public infrastructure and facilities. When we want our country to prosper with all good infrastructure and facilities, paying tax is one way to contribute towards it. Studies show that only one-third of the total population in India is eligible to pay income tax. This is because India is a developing country and a significant amount of people earn less than 2.5 lakh annually. Hence, every individual who earns a taxable income should be proud to be a part of a taxpaying population of India.

save tax in FY 2018-19

While paying tax is a statute in India, there are also a good many ways to save your tax outgo legally. Anyone earning less or equal to 2.5 lakh per annum do not have to pay tax. However, any income earned more than 2.5lac is taxable under different tax slab. Note that the tax rates are bound to escalate with every minor boost in income. So regardless of how much taxable income you produce, the government also provides certain tax-exemptions & deductions with which you can save tax legally and pay a lesser amount of income tax eventually. Here is a lookout for few such tax-saving options:-

1. Tax-saving option u/s 80c of the I-T Act, 1961

The most popular tax-saving options for individuals and members of Hindu Undivided Families (HUFs) are provided under this section of the I-T Act. Section 80c of the I-T Act includes various expenses and investments on which a taxpayer can claim the deduction and enjoy maximum savings. The maximum amount of deduction one can claim under section 80c of the I-T Act is Rs. 1.5lac. The taxpayers can use this entire amount in one financial year to reduce their tax outgo.

2. Tax-saving options other than section 80c of the I-T Act 1961

Apart from the tax exemptions provided to people under section 80c, there are quite a lot of health insurances premiums, home loan and post office saving schemes with which one can save money on income tax. In addition to this, taxpayers can also save a good amount of tax by creating a Hindu Undivided Family (HUFs) - a group of married Hindu individuals. HUF would also include a creator or Karta and his/her family members. The advantage of creating a HUF is that you can divide your income into two entities – one is you yourself as an individual tax-paying entity and second is via HUFs. This way you can claim tax deductions twice and save money significantly in the long run.

How you can save tax in the financial year 2018-19?

The basic criterion to save tax is same as that of the previous year like you must start preparing your tax-saving reserves at the start of the financial year. Most taxpayers start preparing for it at the eleventh hour when the financial year is about to end. As a result of which they are not left with enough time to plan things smartly and options for investment. More often than not, decisions taken in haste do not prove to be beneficial. If you plan at the beginning of the financial year, you will have ample of time to pick and choose the best investment option that may not only help you save tax but also assist you in fulfilling your long-term goals. You must also note that the tax-saving investments you make at the beginning of the FY 2018-19 should be used to make wealth as well and not just to save tax.

Things to keep in mind while making tax-saving investments for the FY 18-19

1. Check whether the tax-saving expenses that you are making now shall be claimed later or not. This includes expenses related to your child’s tuition fees, insurance premium, health insurance, investment in savings scheme to name a few. Deduct this amount from 1.5 lakh to understand how much more you need to invest. Always remember that you need not have to invest the entire amount that is taxable if the operating expenses are covering some portion of it.

2. Always choose your tax-saving investments keeping in mind your goals. Investment in Equity-Linked Savings Scheme, Public Provident Fund (PPF), National Saving Certificate (NSC), Sukanya Samriddhi Yojana, EPF, NPS are some of the popular options that come with a significant amount of tax savings benefits.

Conclusion: - In the recent announcement, the standard deductions are made under budget 2018, while the structure of the income tax slab remains the same. In addition to this, the tax liability of citizens has also been raised in the union budget 2018 except for some categories of senior citizens. For this reason, the taxpayers of the country are required to be more vigilant in making tax-saving investments.

A word of advice: - Since tax-saving is a complicated process, you need to be calm and composed while making decisions. Also, blindly following your fellow colleagues and making same investment may not always work in your favor. This is why it is imperative to look at your goals and profile before making an investment. Also, investing the entire amount that is liable for a tax deduction (as per your income slab) is not important if your expenses are covering it.
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