There are many legal ways, in which payment of tax can be reduced, at the time of filing of the income tax returns. These are called deductions, but to avail deduction, the tax saving tips given below one can ensure he/she can save tax.
These are the five prominent ways that show you how to reduce income tax.
- TAX SAVING INVESTMENT OPTIONS:
A. Any resident of India can invest in Public Provident Fund (PPF) can claim a reduction in income tax. One can contribute up to 1 lakh per annum to the PPF and the interest on such deposit is tax-free. The current rate of interest is 8.7% compounded annually. An individual can also open an account in name of his/her spouse or children and the interest is tax-free. The is a 15-year scheme, wherein one can deposit up to 12 times in a year, only up to the limit of 1 lakh.B. One can invest in 5-year bank and post office deposit and the deposit amount is eligible for tax deduction, but the interest earned is not. The above are popular tax saving investment options.
- Saving tax on salary:Many times one may wonder how to save tax on salary income, one of the following ways can be put to good use.
A.One can deposit in National Pension Scheme (NPS), wherein up to 10% of the basic salary and dearness allowance is tax deductible, but the amount deposited can’t be withdrawn.
B. Other main ways of deduction are a contribution towards the Employee Provident Fund (EPF); one has to contribute 12% of his/her basic salary plus the dearness allowance that they receive and has to include any concession of food towards the same. This can be deducted under the section 80C, one of the benefits of this is method is that withdrawal is allowed even before the deposit is matured, but under certain conditions.
3. Benefit available under 80C:
80C offers a wide range of deductions up to 1 lakh; one can make the best use of the same.
A. The tuition fee for one’s children up to two children is applicable for a tax deduction. But the education must be full-time such as college and schools.
B. One can get a tax deduction by investing in Equity Linked Savings Scheme (ELSS).
4. Leave Travel Allowance:
One needs to provide proof of the travel that he/she has gone by means of taking leave and the cost of travel can be deducted twice in a block of four years.
- Medical allowance:
If medical insurance is paid by the taxpayer for himself, spouse and dependent children, then the taxpayer can claim up to Rs.25000 and he is also paying a premium for a senior citizen such as his parents then he can claim up to Rs. 30000. It has been recently announced that come the financial year 2018-19, the claim for a senior citizen is raised from Rs.30000 to Rs. 50000.
Most of the layman or even educated individuals find it hard to understand the tax policy of our country, but if one sits down and reads through the jargons one can be highly benefitted from the same.