The middle-income group as it is struggles to make both ends meet, and is further required to bear the burden of Income Tax. However, with proper Tax planning individuals can ensure that they pay minimum tax on their hard-earned money, let us cite five legal tricks to maximize your tax-saving:
1. Plan & Declare Your Investments
A wee bit Saving can go a long way in creating your retirement corpus besides giving you tax benefits every year. Plan your investments in instruments like PPF account, Life Insurance Policy, contribution to EPF, Equity Oriented Mutual Funds, National Savings Certificate, etc… that qualify for deduction under section 80C, 80CCC & 80CCD.
The maximum limit to claim tax deduction under these sections is ₹1,50,000/-
Additionally, you can save ₹50,000/- more under section 80CCD by investing in National Pension Scheme.
2. Take a Home-Loan
You must invest in a home and take a home-loan by the time you have job stability. You can claim tax deduction on your home loan in two ways under two different sections viz:
i) Tax Benefit on Principal Amount
ii) Tax Benefit on Interest Amount
The amount of your EMI that goes towards principal payment can be claimed for deduction under section 80C with a cap of ₹1,50,000/- and the amount that goes towards interest payment can be claimed for tax exemption under section 24, with an upper limit of ₹2 Lakh for self-occupied property and exemption on whole interest amount if the property is not self-occupied.
First time home-buyers are given an additional exemption of ₹50,000 for interest on Home loan for self-occupied property, under section 80EE.
3. Medical Insurance
Medical Insurance premium can be claimed for tax deduction under section 80D. The medical insurance hence purchased could be for self, spouse, children or parents (dependent or not). The maximum tax exemption allowed is ₹25,000 for self, spouse or children; and ₹30,000 for senior citizens or insurance for parents. These tax exemptions are over and above the ₹1,50,000 limit of section 80C.
4. Medical Treatment
For treatment of handicapped dependents or treatment of special illnesses, a tax exemption can be claimed under sections 80DD and 80DDB respectively.
5. Planning Your Capital Gains
Everyone goes around buying and selling property once in a while. However, did you know that capital gains are taxed at 20% straight and can drain a huge amount from the sale of your long term capital asset. However, with proper tax planning under Section 54, you can save on paying this huge Income tax. You can claim deduction on the entire long term capital gain by purchasing another residential property 1 year before or 2 years after the due date of sale of the current asset; or by construction of residential house property within 3 years or sale or transfer of the current property.