Income Tax Savings: If you make more than Rs 10 lakh per year and pay a considerable portion of your earnings to the government in the form of tax, you may be eligible for income tax savings. If you believe that because you can’t save tax, it’s only fair to pay it, you’re mistaken. Even if your annual salary is Rs 10.5 lakh, you will not have to pay even a single rupee in tax.
To do so, you must keep your savings and spending in such a way that you can fully benefit from the tax exemption available. This strategy will be explained to you in very basic terms. After that, your tax liability will be zero. Let’s get this straight.
If your annual pay is Rs 10,50,000 and you are under 60 years old, you will fall into the 30% tax bracket.
1- Deduct Rs.50,0000 as a standard deduction (10,50,0000-50,000 = Rs.10,00,000).
2- You can then save 1.5 lakh rupees under section 80C. You can save income tax by investing in EPF, PPF, ELSS, NSC, and paying tuition fees for two children up to Rs 1.5 lakh each year.
Rs 10,000,000 – Rs 1,50,000 = Rs 8,50,000
3- If you deposit up to Rs 50,000 in the National Pension System or NPS on your behalf, you can save income tax separately under section 80CCD (1B) of the Income Tax Act.
Rs 8,50,000 – Rs 50,0000 = Rs.8,00,000
4- If you have a home loan, you can claim a tax exemption on the interest up to 2 lakhs under section 24B of the Income Tax Act.
Rs 8,00,000 – Rs 2,00,000 = Rs.6,00,000
5- Under Section 80D of the Income Tax Act, you can claim a deduction of up to Rs 25,000 for health insurance premiums, including the expense of preventative healthcare check-ups for your spouse, children, and yourself. Aside from that, you can earn an additional deduction of up to Rs 50,000 if you get health insurance for your parents. The only stipulation is that both parents be over the age of 65.
Rs 6,00,000 – Rs 75,000 = Rs.5,25,000
6- You can claim a tax deduction for money contributed in the form of a donation or a donation to an organisation under Section 80G of the Internal Revenue Code. If you make a donation of Rs 25,000, you can claim a tax deduction for it. You will, however, be required to produce papers to verify the donation or donation. The institution to which you donate or donate should provide you with a stamped receipt. That’s the proof of donation that must be presented when claiming a tax deduction.
Rs 5,25,000 – Rs 25,000 = Rs.5,00,000
7- So now you have to pay tax only on the income of Rs 5 lakh and your tax liability will be Rs 12,500 (5% of 2.5 lakh). But, since the exemption is Rs 12,500, he will have to pay nil tax in the 5 lakh slab.
Total Tax Deduction = 5,00,000
Net Income = 5,00,000
Tax Liability = Rs 0