Who would like to lose his hard-earned money by paying income tax, especially when it can be avoided and saved! A lot of time we end up paying more taxes than we should and this is only because of our lack in knowledge of how the tax system works and what the ways to Save Income Tax. The fact is that there are lots of easy ways by which we can decrease our total taxable amount and thus only pay a small amount of tax. It’s interesting to note that these little tips could actually help you in decreasing the taxable amount quite substantially! In this article we will cover the top five ways to save income taxes. So, read it carefully ,understand it and then try to implement it practically and rest be assured that from here on, you will never ever have to pay the lump sum of taxes at any time!
Top 5 Tips to Save Income Tax
So let’s start to discuss the ways by which you can lower your total tax and Save some of your Income Tax.
Note: Taxation rule is different in every country, and in some cases it differs state to state. It also changes year by year, so please take advise of a professional before taking the final decision.
5. By Gifting Money
Do you know that we can save tax on an income by gifting it? This is very much legal and is very useful in saving taxes. If you have X amount of money with you on which you are likely to pay tax in this financial year, then you can simply gift it to your close ones and pass the tax liability to them. What it means that if you gift your children X amount of money, then it becomes their money and if they invest it and get a return on it, then they have to pay tax only if it exceeds the tax exemption limit. This works very well if you gift the money to multiple children as in this case the profit (return on income) will be splitted equally among them and they either have to pay no tax or at least pay much lesser tax on the profit. Remember that you can only gift money to your own children. You cannot gift it to your spouse. Also, you children must be over 18 years (adult) to claim the tax exemption.
4. Providing interest free Loan to your children
You can also claim tax exemption on your money by providing interest free loan your major children. This way you still keep the hold on your money and your children too do not have to bear any interest on it. All the other requirements remains the same as stated in point 5.
3. Claiming tax exemption on the house property purchased by you
Many people are not aware that they can claim tax exemption on the stamp duty paid by them while purchasing a house property. Under 80 C, one can claim exemption on the amount paid by him as stamp duty and thus reduce this taxes. The rule for it is that you have to claim in the same year in which you have purchased the house and the house should be under your possession.
2. Claiming HRA
Many people are not aware that they can claim HRA and get tax exemption. The amount that can be claimed is the minimum amount out of a) Rs. 2000 per month b) your rent paid – 10 % of your income c) 25 % of your incomes. You can claim for HRA even if you do not get it from your company or if you are self-employed.
1. Adjusting your profit with loss
If you have made more than one investment or are involved in more than one ventures at a time and have made profit in one and loss in the other, then you can adjust your loss with the profit and pay tax on only the net profit. For example, if you have a total of X amount of profit in a financial year and you has invested in shares in the same year and had lost Y amount in it, then you will only have to pay tax on X – Y amount and not on your entire profit.
Thus, you can see that there are lots of ways by which you can save your taxes. All you need to do is to be aware of them. Taxes rules and regulations keeps on changing every financial year and therefore it is necessary that you keep yourself updated on them. The best part is that these are all legit ways vouched by the law and therefore, by doing things in the right way, you not only save yourself from paying extra money, but also get peace of mind that you have not done anything unlawful to evade tax. It is not difficult to keep the latest news about taxes. In the age of Internet, information is just a click away! So use it for your own benefit and save money! If you are aware of any useful technique to save income tax let us know in the comment section.