Tax, this three letter word spells a big headache for people. Many people do not even know how much tax they are paying every year. Being a tax advisor at H&R Block, I get many enquiries from my clients about tax savings. This article would be very helpful for such people because I am going to provide assistance to tax filers through this article on how they can minimize or save their taxes.
Every person is paying tax whether it is direct tax or indirect tax. Direct taxes include income tax which is paid by every tax payer directly to income tax department in form of TDS, self-assessment income tax at the time of return filling and advance income tax on income earned during the year. Indirect taxes include service tax, excise tax, VAT etc., which is paid by every person when they either avail of certain services or purchase goods and services from the market.
Whether you are a salaried person or a self-employed person, you always look to save taxes. At H&R Block we cater to both types of clients and they always look to save taxes as much as possible. Let us see how you can save your taxes in a genuine manner using some simple tips.
Salaried people can save their taxes in the following ways:
- Salary Structure: Your Employer needs to include as many tax exempt components in the salary structure as possible so that your taxable salary reduces by availing the exemptions. Exempt components like conveyance allowance (exempt up to 1,600 p.m.), medical reimbursement (exempt up to 1,250 p.m. provided bills are submitted to the employer), health club allowance (exempt up to 1,500 p.m. provided bills are submitted to employer), house rent allowance (exempt up to specified limits), leave travel allowance, education allowance, books and periodicals. One can also use the motor car perquisites to reduce the taxable salary.
- Buying a House: If you do not own a house then you can purchase one and enjoy the benefit of deduction of interest and principal repayment of housing loan. If the house is self-occupied then you can claim the housing loan interest up to Rs 2 lacs per annum. You can also claim the principal repayment of your housing loan under section 80C up to Rs. 1.5 lacs. If the house is given on rent and you are receiving rental income then you can claim housing loan interest without any ceiling limit. You must remember that the interest deduction is available on payable basis and not on paid basis. Even if you were unable to pay loan interest during a particular year due to certain financial difficulties, you can still claim it as a tax deduction.
- Deduction under section 80C: Section 80C offers an array of investments that are tax deductible. You can invest up to Rs.1.5 lacs and claim deduction under section 80C. From the AY 2015-16 you can additionally save Rs.50,000 by contributing National Pension Scheme under section 80CCD (1B).
Businessmen can save taxes in the following ways:
If you are a businessman you can easily minimize your taxes as compared to salaried employees. You can claim all your business expenses against your income. However you need to make sure to keep all your bills for expenses securely for record. In case there is a scrutiny of your tax case and the assessing officer asks for bills, you can present all these bills. You can also minimize taxes by investing in a new house and claim deductions for interest and principal repayments under relevant sections of the IT Act.
NRIs can save taxes in following ways:
If you are a resident in two or more countries then you can escape the axe of double taxation by claiming credit of taxes in either country. India has DTAA agreements with many countries. So, if you are paying a tax in a foreign country then you can claim a relief from taxes under section 90 in India (If India is having DTAA agreement with that country) and under section 91 (if India is not having DTAA agreement with that country.)