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.

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.

Reduce Your Income Taxes by Owning a Home Business

Tax system is complex. Each year a thousands of people struggle to save tax but end up paying more than they actually should. If you too are amongst such taxpayers, you must seek advice from a tax specialist or an accountant who would guide you on how to deposit your tax wisely. Besides, you may also reduce your income taxes by owning a home business. Here’s how?

Let’s suppose you have a full-time job but you are also a travel consultant who runs a small business at home. So now since you run a business from home, you must be using a car to travel back and forth possibly to drop off your business advertising pamphlets. It could also include your supermarket visits, grocery shopping, etc (coincidentally) while on the way to post a flyer or meet some client related to your business, which makes 90% of your automobile expense tax deductible. In view of the fact that you have an office in your house, you claim at least 30% tax deductions from mortgage interest, house maintenance, water bill, electricity bill, rent (if you don’t own a house), repairs made in your house for business, etc. The use of telephone, internet and any other facility that is required to conduct a business from home can also be claimed as business deductions.

Furthermore, if your business requires you to travel to places within or outside India, your airfares, meals while traveling, hotel accommodation, car rental, the purchase of any types of equipment like video, camcorder and cell phones are other essential tools for your travel business that will be entirely tax deductible. This way you can save a lot of money that you would otherwise use to pay taxes. However before taking the plunge and claiming tax deductions from your home-business make sure you meet IRS qualification that states that your home should be your principal place of business. However by any chance, you operate your business from a separate location other than your home; you cannot claim deductions for use of your home. Still, IRS determines a few factors to approve the deduction:-

1. The relative importance of activity that is performed at each of your business location

2. How much time you spend at each of your business location

If you manage your business solely from home, you’ll have to abide by the following clauses:-

1. You use the business place at home solely for business activity, management and administrative purposes.

2. Apart from your home, you have no other fixed place to conduct the business management and administrative work. However, you may do some business related work outside your home. For instance, your car.

Other than this, to get the IRS approval, you are required to prepare an IRS audit that ensures that you are not violating any rule or regulation and your home office is used "regularly and exclusively" for business purposes. One important point to note is that home business deductions are limited. You can claim deductions for your home business expenses to reduce your business income for the year, but if you had a business loss, these deductions are not possible in any circumstance. Also, not all home businesses are treated the same and may reduce your yearly taxes. There are special rules applicable to daycare business operations and if you use your home for storage space, you must seek advice from an accountant or tax attorney to come up with a better tax-saving alternative.

How Much Income Tax Can You Save, if You Take a Home Loan?

Buying your first residential property with the help of a home loan can get you several tax benefits. These deductions will not only enable you to save big on your income tax outgoes but also allow you to manage your expenses efficiently. If you want to learn how much income tax you can save, if you take a home loan, below is the list of deductions that you can claim:

1.  Deduction on interest: With every home loan comes the liability of paying EMI. However, the interest amount of the loan EMI can be claimed as a deduction, if you are both the owner as well as the co-borrower of a home for which you have taken home loan. You can claim this deduction in the year the construction of your home is completed. Let’s suppose the construction of your home is completed on 30 September 2015. You can claim the deduction for interest for the complete 12 months in the financial year 2015-16. This way you can claim the deduction of Rs. 2 lacs for the new house you stay in. However, if you have put the same house on rent, the interest of entire year can be claimed as a deduction.

2.  Deduction on principal repayment: As the EMI of a loan constitutes both the interest and the principal amount; you will also get benefit for principal repayment. Under section 80C of the income tax act, the part of the EMI which is paid towards the principal can be claimed for deduction. For this, you can calculate the yearly principal amount and claim it for deduction. You can claim Rs. 1.5 lac as a deduction under Section 80C.

3.  Tax deduction on pre-construction interest: You can also claim a deduction for pre-construction interest of your home loan but make sure you make these claims in the beginning of the financial year in which the construction is completed. For this, you must first add the entire pre-construction interest and then claim it in equal payment. Your total deduction on pre-construction interest should reach more than Rs 2 lacs if you reside in the same house and not putting it on rent.

4.  Deduction on registration charges and stamp duty: Under section 80C of the income tax act, you can claim the deduction on stamp duty and registration charges as well. But this deduction is only claimed in the same year these payments were made.

5.  Deduction under section 80EE: You can claim tax deduction under the section 80EE if you are the first-time buyer whose property price is not more than Rs 40 lacs and those who have borrowed the loan of Rs 25 lacs or less. To claim this deduction, another clause is that your home loan should have been approved in between April 1, 2013, to March 31, 2014. Under this section, you can avail a maximum deduction of Rs. 1 lac which can be claimed in any one financial year, i.e. 2013-14 or 2014-15. However, this benefit does not exist for the current financial year 2015-16.

Conclusion: Home loan comes as a boon for those who want to buy their own house and these income tax deductions certainly act as the cherry on the cake. With these deductions, new homeowners can save big but only if these claims are made on time. In addition to this, a little awareness of all types of tax deductions is important to act accordingly. For your further help, many websites provide tax saving calculators with which you can easily find out how much tax can you save if you apply for a home loan. These calculators have a user-friendly interface, thus can be used by anyone with ease.