How to save income tax in India – 30 working ways for Salaried and Business
You can make money, not just by earning more, but through saving more as well
This
list of 30 ways on how to save tax in India is guaranteed to
surprise you with tax saving tips that you have never heard of. This
guide will answer all your questions related to how to save income tax
in india.
So without wasting any time, let me tell you the cheat codes (not exactly cheats, rather genuine ways - i am a law abiding citizen :D) for income tax saving tips
Table of Content for Quick Navigation
How to Save Tax - How to save income tax in India?
Tax
planning is an important part of a working professional’s life. Every
year we file income tax returns on our salary and hope to make savings
on the huge taxes. People every year think how to save taxes? They plan
their long-term or short-term investment from the Tax Saving Options
accordingly. Every year we make our efforts in saving maximum on our
taxes.
There are different ways to invest money in the market
offerings the money invested gets us the maximum the percentage in
rebate for the taxes.
The Indian income tax act allows the taxpayers to claim to save on the taxes filed to
the government. This is provided salaried people have made an
investment in the tax planning options available in the
market. Different financial institutions and financial organizations
such as banks offer multiple investment options in tax savings with
sound tax planning guidance.
Similarly,
the business owners who generate income from the business must plan
their taxation accordingly. For business owners, it is in their best
interest to maximize their investments to ensure they are eligible to
claim tax benefits.
The
planning of the taxes musty is done in accordance with the taxation
laws to avoid unnecessary taxes. The income tax in India has different
criteria and laws for the taxation of the income. The understanding of
the complexities of the taxation laws is important. Therefore, many
businesses outsource the taxation related requirement to the taxation
specialized firms or an expert.
Types of Income.
Income is generated as financial gains by offerings service
or a product to the customer for an approximate value. The income can
get generated from a fixed asset or the investments made in the market.
For an example income from
a building given on lease is fixed asset income and income from
investment in the market comes from the cash availability. This type of
liquid cash income is instantly ready to be either withdrawn or invested
in the market.
Nevertheless, income is also generated by people who are working for a business or business owner's are themselves getting paid for their service or the product offered to the consumer market.
Salaried Income.
Salary is a taxable income that is paid to the employees of the company on the weekly, biweekly or monthly basis. The employees pay a percentage of their salary to the taxation authorities every month.
The
same salaried income can get claimed by the employee upon the taxation
return filing during the closing of the financial year. The income tax
act under the government of India allows the salaried people with the
tax-free bracket as per which people with a certain amount of annual
income will not have the taxes levied on them.
Below mentioned is then latest taxation slab.| Income Tax Slab and Rates for the Financial Year 2016-2017. | |||
| Income Slabs. | General Category. | Senior Citizens. | Senior Citizens Above 60 Years. |
| (Non-Senior Citizen) | (Age 60 years and Above, but below 80 years.) | (80 Years and Above of Age) | |
| Upto Rs. 250,000. | Nil | Nil | Nil |
| Rs. 250,000 to Rs. 300,000. | 10% | Nil | Nil |
| Rs. 300,000 to Rs. 500,000. | 10% | 10% | Nil |
| Rs. 500,000 to Rs. 10, 00,000. | 20% | 20% | 20% |
| Above Rs. 10,00,000. | 30% | 30% | 30% |
Income from the Business.
Business
owners hire workforce and guide them to do the work as the business
requirements to meet their client goals under the specified time
frame. This type of income is referred under section 28 as the “Income
from Business or Profession”. The computation of the income is done in
accordance with the provisions mentioned sections 30 to 43D.
There are few more sections as per which the computation of the business income is done.
Below mentioned are the details.
| Specific Tax Deductions | Sections 30 to 37 cover's the expenses that are expressly allowed as deductions while computing the income generated by the business. |
| Specific Disallowance | Sections 40 to 40A and 43B cover the expenses that are inadmissible. |
| Special Provisions | Sections 33AB, 33AC, 33ABA, 35AAB, 35A, 41. |
| Deemed Income | Sections 42, 43C, 43D, 44, 44A, 44B, 44BB, 44BBA, 44BBB, 44DA, 44DB. |
| Presumptive Income. | Sections 44AD, 44AE, 55. |
How to save tax - Salaried People Tax Planning
We
all have responsibilities in our lives and money is a key element that
comes to use when needed to take care of the responsibilities. People in
job sector face multiple problems regarding their financial situation
when confronted with financial burdens and taxes on income.
Taxes
can certainly take a toll on a salaried person’s earnings and cause
trouble in an efficient handling of the responsibilities. Provided you
want to curtail these troubles then plan your taxes for the entire
financial year accordingly.
There are multiple ways in which one can learn about how to save tax on salary
Different types of investment opportunities are tax-free.Income
tax savings can easily be done through, Insurance Policy is one such
great example of the investment that does not have any taxes on it.
If you are searching for how to save tax on salary then this article will guide you on all the tax saving tips.The
allowances that are paid on the salary many of these allowances are
non-taxable. Below mentioned is the details of the allowances that do
not come under the taxation bracket.
- Newspaper, Books, Magazine.
- Conveyance.
- Uniform.
- Driver.
- Mobile Phone and Telephone.
- Office Entertainment.
- Personality Development.
- Medical Treatment.
Hence, not all the allowances can get offered to the employee.
Also, it depends on the employer who decides what type of the allowances must be mentioned on the salary of the employee.
Taxes Planned on the Rent Payment.
Job opportunities can be either local or in a different city or state.Most of the organizations do not offer any accommodation service to the employees.
That is why the employees live in the rented accommodation.
Different companies give the “House Rent Allowance” to their employees as a part of their salary structure.
The HRA gets subtracted from the income of the salaried employee.
Leave Travel Allowance and Medical Expenses.
There are numerous personal expenses on which a person can get tax exemptions. These expenses also get deducted from the salary component.Employees get the medical allowance and leave travel allowance as a part of their salary component. If you want your expenses to be tax-free then you must plan your taxes accordingly and present the Actual bills based on which you are claiming the benefits.
Invest in the Market.
There are different types of the investment that permit the taxable income rebate to the salaried person. These kinds of investments are defined under the section 80C of the deductions. There are several investments that come under the category of the EEE.The list of investments that is helpful in saving the taxes is mentioned below.
1. Contribution to the EPF Account:
Employee provident fund has come up as a great instrument for the retirement planning. Salaried people make investments in the EPF.2. Tax Saving Mutual Funds:
There is multiple tax saving mutual funds in the market offered by the government banks and private banks.These are also known as the equity-linked savings schemes.
These mutual funds generally invest money in the share market for the time period of 3 years lock-in-period.
3. Deposit in PPF Account:
A PPF account is a scheme that is started by the government for a long-term investment.This PPF account gets to be opened by anyone in Post Office, SBI, or other banks.
4. Tax Saving Fixed Deposit:
The tax saving fixed deposit in many ways is similar to the regular fixed deposits offered by the banks.Usually, the lock in the time period of the fixed deposit is 5-year lock-in-term.
5. Sukanya Samridhi Account:
Sukanya Samridhi Account is an initiative taken by the Government of India to empower girl child.Compared to all other saving schemes this scheme offers the best returns. This makes it the main attraction amongst all the investment schemes.
6. National Saving Certificate (NSC):
The national saving scheme is a small scheme introduced by the post office.The national saving certificate is issued to the client for the time span of 5 years. The NSC comes under section 80C and offers the rate of return of 8.5%.
7. Senior Citizen Saving Scheme:
Senior Citizen Saving Scheme is a basic level small scheme that is launched by the Government of India.This scheme helps the people in saving taxes and provides nonstop regular income to the senior citizens.
8. Life Insurance Claim or Maturity Amount:
There are amendments introduced in the finance act in the year 2003. As per the amendments, any insurance policies were exempt provided the premium does not exceed 20 % of the assured sum. If the assured sum was with the less value then the entire maturity proceeds can come under taxation.9. Hindu Undivided Family (HUF) Account:
The HUF account is used for making the savings on the additional income that the salaried professional or a business owner might be earning. The salaried professional can deposit the secondary income into the HUF account.This scheme includes the Sikh, Hindu and Jain families in India. For the a/c holder must have a separate pan card and the bank account number. The income tax department of India considers the HUF account as a separate entity for the taxation purpose.
10. Profit from Selling the Shares:
Provided you invest in stocks or in the mutual funds and get profits from the same. There are investment schemes that help you save taxes on your returns and when you file the income tax return.11. Tax Saving from the Home Loan:
You can use your home loan to effectively save income tax in different ways. There are three main ways to get income tax deduction done on your home loan.a. In the current financial year, the principal amount repaid is included under the section 80c. As per the law, the deduction up to INR 150,000 is offered.
b. Under the section 24, the interest rate offers the deduction up to INR 2 Lakh separately.
c. For the first time buyers the benefit on the interest on home loan INR 50,000 under section 80EE.
d. Provided you are living in the home for which you have taken your first home loan, you can get another home loan for the second house. The income tax deduction on the interest payment is limitless for the second home loan. Not many people are aware of such benefits offered to the salaried working professionals.
12. Savings on Taxes on Education Loans:
The interest paid on the educational loan in not taxable, there is no upper limit on the amount. The education for the higher studies is applicable for the deduction if it is taken for self, children or the spouse, etc. This is the provision under the section 80E.13. Medical Insurance:
The medical insurance is taxation free under the section 80D. Deductions of INR 15,000 in medical insurance for self, dependent or spouse is non-taxable. Also, the sum of INR 20,000 is not taxable for the senior citizens.14. Donations:
Section 80G - The donations given to the non-government organization, charitable institutions. The generous donor must obtain the stamped receipts of the donations and make sure to verify the charitable organization must be registered.15. Income from Gratuity:
Gratuity is non-taxable under certain provisions. It is an income that is received when an employee retires, becomes incapacitated or gets terminated from the employment. In the case of death the gratuity received by the widow, dependents such as children, gets the exemption from taxation on an amount up to INR. 350,000.16. Meal Coupons:
The employees can ask for the meal coupons to be issued to them by the employer like Sodexo. The amount is not taxable up to INR. 2600.17. Company Leased Car:
Check with the company about the car lease policy. If it is applicable then the employee claiming "Daily Travel Allowance" will not be able to misuse the claim and you can drive the company leased CAR and save the taxes on fuel and EMI, etc.18. Interest Income Earned on the NRE Account:
The government of India is friendly to the non-residential Indians living in the foreign countries. Many NRI's living abroad takes a loan specific fixed percentage. They can invest that money in India through the NRE account earning the tax-free income at 8%-9%. The income generated may be tax-free in India in the NRE account; however, it may be taxable in the country of residence.Salaried People also use the Expenses is Saving Taxes.
There are certain expenses that come under the deduction of INR 1.5 Lakhs.a. Tuition Fees for Self and Children.
b. Insurance Scheme Premium Payment.
c. Principal amount payment
of the home loans – EMI for home loan comes in two-division, principal,
and interest. The tax saving benefit is offered under section 80C for the principal payment part. These expenses and investments must be under the limit of INR 1.50 Lakhs.
Business Income Tax Planning - How to save income tax
Business
owners take great care in planning their business and their
expenses. Many times the biggest mistake that happens is the careless
tax planning that can either lead to heavy taxes levied on the business
or needless taxation charges.
Failure to pay attention to the investments and tax planning leads to such dire situation. There are some options that self-employed working professionals or business owners can use to make the investments and save tax.
Failure to pay attention to the investments and tax planning leads to such dire situation. There are some options that self-employed working professionals or business owners can use to make the investments and save tax.
1. Business Start-Up Expenses:
These expenses happen during the inception of the business or a new unit of an existing business.These expenses are also categorized as the preliminary expenses and get deducted under the section 35D from the taxable income.
Presently taxation law ensures the expense head is deducted equally for the taxation purpose over the time duration of five years and not get deducted as a lump sum.
Some of the expenses related to the business start-up expenses are mentioned below.
1. Rent amount paid for the office premises on the lease.
2. Travel expenses in the name of the business shown in the books.
3. Expenses involved in a driver, toll charges, phone, vehicles, etc.
4. Premium paid on medical insurance for self, wife, parents, and children, etc.
5. Salary paid to the staff even if it includes the family business.
6. Expenses that occurred prior the inception of the business that can get deducted from the taxable income under the section 35D.
2. Utility Expenses:
Business owners that have an automobile, phones, drivers, toll receipts, paid parking receipts can show the same under their utility expenses.These utility expenses can be claimed for the income tax rebate purpose. The person working from a home office can claim the electricity bill cost. This can help in reducing the cost burden of a start-up business.
3. Medical Insurance:
Medical Insurance Premium that is paid to the tune of 15,000/- can get claimed under section 80D and the insurance is for the family members such as the spouse, dependent children, dependent parents, etc.4. Other Expenses:
It is important to avoid any type of confusion in tax filing by the businesses, therefore all the details must be clearly mentioned in the business name.5. Depreciation:
This
is one of the best ways the entrepreneurs save tax. The assets such as
the car, computers, furniture, mobile phone must get purchased under the
company name and get claimed under the depreciation. Depending on the
amount of purchase of the asset the depreciation claim may differ.
6. Office Rental:
Entrepreneurs often start their business at a rental property to reduce the financial burden compared to buying their own office space.The company can pay the rent to the property owner that is either (entrepreneur family, friend or a relative) this is counted as the expenses that can lead to the reduction in the tax liability.
7. Hiring Family Members as Employees:
Hiring family members as an employee and paying them the salary is another effective method to reduce the tax burden. If the family member is not working then the business can pay them the sum of INR 200,000/- per annum as per the latest taxation slab in India.This helps in having trusted people around the business and enables the business owner to reduce the outflow of the tax money.
8. Agriculture Income:
Agriculture is a fast growing profession many businesses are turning towards this profession. At present as per the government of India agriculture is a tax-free profession. The income generated by growing and selling the agricultural produce is tax-free. It is classified as rent derived from the farm land, income generated by the agricultural products, income from the farm building, etc.9. Food Expenses in Business:
The business owners need to meet different people like vendors, customers, and potential hires. The money paid for food can get shown in food expenses and the business expenses.10. Inherited Amount through the Will:
There is no inheritance tax in India, therefore whatever you get from your family, relatives, or the next of kin is a non-taxable income.11. Dividends Received from Shares or Equity Mutual Funds:
Investments in Stocks or the mutual funds distribute a share of their revenue earned in the market with the shareholders. These dividends are tax-free in the hands of the recipient.For Example - You bought stocks worth 100,0000/- and get the dividend worth 250,000 after 10 months.This return on investment is before 1 year has completed the purchase of the stocks. Hence, you are not liable to pay any taxes on the dividends.
12. Gifts Received on Marriage Occasion are Tax-Free:
The couple can receive the gifts from family, friends, and relatives on the occasion of the marriage and you do not have to pay any taxes for the same.13. Travel or the Hotel expenses in Business:
The business owners often travel to a different destination to meet existing or new clients to grow their business. This process involves extensive travel and lodging such expenses with receipts can get documented for taxation exemption. Therefore, it is best recommended to the business owners to show the travel expenses to the taxation authorities.14. Telephone and Internet Expense Reimbursement:
Businesses usually have the policy of providing reimbursement to their employees at different levels. Therefore, if you are the business owner or an employee you can claim the expense for the internet and the phone use.Business Owners Making Investments.
The
business owners can benefit from investment options to save the
substantial amount in taxes. There are plenty of options to choose from
and decide the best-suited investment option to choose from depending on
the structure of the business.
In case the PAN number and the entity are same then the investments are considered to be made under one entity.
Provided
the business is a partnership or a private limited company then the
business will have a separate PAN card. The business owner should make
the investment plans keeping in view retirement benefits for self and to
raise a substantial amount of money.
It is crucial to raise a large cash flow for the business. Ideally, the investment must be made under the name of the company so the returns on investment are available in liquid cash, fixed deposits, and debt funds.
Since predicting, the success or the failure of the investment in the market is not possible the business owner must select safer investment options to ensure cash requirement of a new startup that must continue to grow in future.
There are other ways the business owners can claim income tax benefits below mentioned are some of these options.
Businesses face large taxation percentage depending on their gross revenue. To make sure that the business owner or the co-owners can save taxes at the financial year closing.
Generally, a business is identified as a private limited firm but below mentioned are the types of business and their income.
The income tax slab must get applied in the business sector for the years 2016-2017 assessment years.
Education cess at 2% and SHEC @1% shall get levied on the Income tax that is computed.
It is crucial to raise a large cash flow for the business. Ideally, the investment must be made under the name of the company so the returns on investment are available in liquid cash, fixed deposits, and debt funds.
Since predicting, the success or the failure of the investment in the market is not possible the business owner must select safer investment options to ensure cash requirement of a new startup that must continue to grow in future.
There are other ways the business owners can claim income tax benefits below mentioned are some of these options.
Investment Plans for the Business Owner.
Businesses face large taxation percentage depending on their gross revenue. To make sure that the business owner or the co-owners can save taxes at the financial year closing.
Make
sure smart investments are made in the market to minimize the tax
outflow from the company. It is not everyone’s cup of tea to understand
the taxation laws properly.
Therefore, it is important to plan and
invest in a consultation with the tax experts to avoid the large
percentage of revenue going into taxes. An expert opinion of the tax
professionals is a must.
Every
business generates income via different channels by offering services
and products to the end user. It is important to keep a tab of the
overall income generated and investments that help in saving taxes.
The
business can be done by different entities depending on the nature of
the business entity tax slab is decided and depending on the revenue
generated the tax is applied.Generally, a business is identified as a private limited firm but below mentioned are the types of business and their income.
- Sole Proprietorship.
- Partnership.
- Limited Liability Partnership.
- Private Limited Company.
- Public Limited Company.
The income tax slab must get applied in the business sector for the years 2016-2017 assessment years.
Education cess at 2% and SHEC @1% shall get levied on the Income tax that is computed.
| Co-Operative Society. | |
| Income Tax Slabs | Income Tax Rates |
| When the Total Income does not exceed 10,000/- | 10% of the Income. |
| When the Total Income does not exceed 10,000/- but does not exceed 20,000/- | 20 % of the amount that exceeds the INR 10,000/- |
| Where the Total Income Exceeds. | 30% of the amount by which it surpasses the amount of INR 20,000/- |
The income tax slab rates at flat at 30% of the total income in case of the firms and the local authority.
| Income Tax Slab Rate for Local Firms and local Authority. | |
| Level of Income | Surcharge |
| Income less than INR 1 Crore. | No Surcharge. |
| Income more than INR 1 Crore. | 12%. |
The surcharge at the 12% is levied on the total income of 1 crore during the financial year. In case the income is less than 1 crore then no tax shall get levied.
In the case of the domestic companies, the income tax levied is 30% of the total income earned during the entire financial year.
However, recently the Union Budget of 2017 has reduced the income tax from 30% to the 25%.
This is for the domestic company with a turnover of more than INR. 50 crore, the income tax computed will get levied at 30%.
The surcharge at the 12% is levied on the total income of 1 crore during the financial year. In case the income is less than 1 crore then no tax shall get levied.
In the case of the domestic companies, the income tax levied is 30% of the total income earned during the entire financial year.
However, recently the Union Budget of 2017 has reduced the income tax from 30% to the 25%.
This is for the domestic company with a turnover of more than INR. 50 crore, the income tax computed will get levied at 30%.
| Income Tax Slab for Domestic Businesses. | |
| Level of Income | Income Tax Rates |
| Less than 1 Crore | No Surcharge |
| Above 1 Crore but less than 10 Crores. | 7% |
| Above 10 Crores. | 12% |
Salaried People Investment Plans.
Salaried people need to make investments that provide good returns on their investments and help them save their taxes. Hence, it is important to make an investment in plans that help in saving tax percentage depending on the annual income of the person.Benefits of Tax Saving.
The benefit of the tax saving is common for the salaried people, business owners, and the self-employed working professionals is to save on the tax outflow. This works out well when the tax planning is done with consultation of an experienced tax expert.
Not
only the savings help in taking care of the household responsibilities
but they also help in planning for the retirement benefits. Also,
savings can get invested future financial planning.
I hope you like this article on how to save tax and i assume
that the next time you think about how to how to save income tax in
India, this article will be your best helping in doing so.
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