Income tax is seen as a burden by people who have to pay some part of their income to the government so that it can use them to fund places and services used by the public in general. The rising income tax rates have encouraged people to strategize tax saving plans.
Paying income tax is not only a complicated process but might also seem expensive and unfair. We might also feel that we are paying a large amount of our income to the government, which hides their costs and expenditure and leads to corruption.
No matter how unfair this sounds, evading taxes is not the solution. The wise and legal ways in which you can save on income tax are given under Income Tax Act, 1961. Some of them are given here:
1. Investment Plans
In order to save on paying high taxes, people look for best investment plans with low tax rates for their future. Saving today and paying lower taxes in future is a wise way of limiting your income tax returns. Finding the best investment plans help you in keeping your future secure, and is also encouraged by the government. Some of the schemes you can look at are National Savings Certificate (NSC), National Pension System (NPS), etc.
2. Employee Provident Fund
This Fund is exceptional to employees. In this avenue, both employer and employee contribute 12% of share of the employee’s basic salary every month to the EPF. The amount contributed by the employee is exempt from tax till upto Rs. 1.5 lakhs per year, but the employer’s portion is not taxable. The interest on such contributions is tax-free as well.
3. Tuition fees
Parents can also claim deductions of upto Rs. 1.5 lakh for payment of tuition fees for their children’s education. However, it has some conditions; it’s only available to single parents and guardians with upto two children, who must be in a full-time Indian school, college or university. It also applies to unmarried individuals, divorced parents and parents with adopted children.
4. Donation to charitable institutions
By donating to a recognized charitable institution for public benefit, you can get upto 50% or 100% tax deduction of the amount donated. However, donations only upto Rs. 2000 can be made in cash to be eligible for tax deductions.
5. Gifts exemption
Gifts that are given by specific relatives such as spouse, siblings and parents are exempt from tax, but any income generated via such gifts will not be exempted. Gifts received from other relatives are exempt upto Rs. 50,000. Any gifts received in the event of one’s marriage are fully exempt from taxes. Along with this, any gift received under the will of a person is also fully exempt.
These are some of the wisest and smartest ways to save on paying high income taxes. All of them are fully legal and can be found under the Income Tax Act.