No matter where you’re from, where you live, or where you work, there’s one thing all earners have in common: taxes. The collection of personal income tax is the government’s main source of revenue. It is what funds the construction of roads and other essential infrastructure. It pays for the subsidies on LPG and food, and it ensures the nation’s economic growth and development. But there are ways people can save on their income tax. Ordinary people are always looking for opportunities to save on income tax. Here are five ways to reduce your income tax:
1. Health insurance
Health insurance is compulsory for all responsible adults. The pandemic that most of us have survived over the past two years has brought this fact into sharper focus. You never know when a type of disease may affect you. You can claim deductions of up to ₹25,000 in premium payments per year from your taxable income bracket. This means that if your taxable income is ₹5,000,000 and you pay a premium of ₹10,000 per year for your health insurance, you can simply deduct that amount from your total payable. You will only have to pay a tax on ₹4,90,000.
2. Life insurance
Life insurance plans have a double benefit, in terms of tax savings. First of all, you benefit from exemptions on the payment of premiums. Second, the amount you get at maturity is tax-free. You can claim deductions of up to ₹1.5 lakhs on annual premium payments. This means that whatever you pay as a premium is subtracted from your tax payable. The tax payment is calculated on the remaining amount only.
As attractive as equity investments are, there are no tax advantages to them. If you earn high returns in the capital markets, the government will want a share. However, some specific types of mutual funds may provide you with tax advantages. ELSS (Equity-Linked Saving Scheme) mutual funds, for example, offer deductions of up to ₹1.5 lakhs. These instruments are also exempt from long-term capital gains tax. Any profit you make will also be completely tax-free in this case.
For normal stock investments and other mutual funds, you can simply claim long-term capital gains tax exemptions, if your profits for the year are less than ₹1 lakh.
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4. Government plans
Government schemes include policies such as PPF, EPF, NPS (everything you need to know about National Pension Scheme (NPS)), etc. These are basically tax-exempt investment vehicles that were started by the government. Here too, you can claim deductions of up to ₹1.5 lakhs. However, in this case, there is a high blocking period. For example, PPF has a lock-up period of 15 years. Before the end of this blocking period, you will not be able to access the amount invested.
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You can benefit from attractive tax advantages on certain types of loans. In particular, home loans offer the highest benefits and exemptions. You can claim deductions on both the principal amount as well as the interest payment. The maximum exemption allowed is ₹1.5 lakhs per year.
You can also apply for waivers on student loans. For other types of loans, there are no exemptions. There are also other tax saving methods, but these are by far the most popular.
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Your skin and your body like you are unique. Although we have taken every measure to ensure that the information provided in this article and on our social networks is credible and verified by experts, we recommend that you consult a doctor or your dermatologist before trying any home remedy, a quick hack or exercise regimen. For any comments or complaints, contact us at [email protected]