Paying Taxes is a necessary contribution for the development of our nation. However, it may burn a hole in your pocket in case we don’t exercise the possible options to save on taxes.

Being a salaried individual, it is necessary to plan and save as much you can during each financial year. Knowledge of the income tax slabs and deductions applicable are essential as they might be subject to change with every year's finance bill.

Here are some tips that Indian people can follow to ensure investing in all the right instruments and thereby maximizing all options possible to reduce our tax liabilities.

How to plan tax in India is an often asked question.

However, this differs for each individual based on their income, liabilities, risk appetite, and savings required for retirement, education, or marriage. The basic knowledge of all our income sources is necessary to understand the total monetary gains we make.

Salary is not the only income for every individual, but other potential sources of income could be many, like rent received from owned property, capital gains, profits from business or trading, and income from any other sources.

Based on that, we need to calculate the taxable income by summing the total income and understanding the deductions that we can utilize to save further on taxes.

Our government has included various provisions based on the economic condition to help us save taxes under different sections available under the Income Tax Act. The government also brings multiple changes in the income tax implications that you need to know in order to plan the taxes well.

When it comes to tax planning in India, the below tips will come in handy for any
individual:

Health Insurance

Paying your premiums towards your health insurance is something that is an absolute necessity, given the rising healthcare costs in India. Remember to claim your tax benefits under Section 80D of the Income Tax Act.

The premiums for all members of your family and any preventive health check-
up is covered under this.

Life Insurance

Another common investment that is eligible for deduction under section 80C is the life insurance premium. Term Insurance, long-period tax saving deposits, investments in PPF, mutual funds, and pension plans are among the various financial instruments that can come in handy when trying to save taxes.

Tuition Fees

Another expenditure that every salaried individual needs to shell out of their pocket is the tuition fees of their children. Unfortunately, not everyone is aware, and this expenditure for up to 2 children is eligible for exemption under Section 80C.

To promote a higher literacy rate and education of children in India, the government has provided such benefits. This benefit is also applicable if the child is adopted.

Home Loan

A long term investment that includes both interest and principal repayment by the individual. Here interest paid up to 2 lakhs is available for deduction under Section 24 while Principal paid up to 1.5 lakhs is available for deduction under Section 80C.

Rental Allowance

In case you do not have a home loan, you can still avail of deductions on your home rentals. Tax exemptions apply to your house rent and typically come in the range of 40-50% of your basic salary based on your location being a metro or a non-metro city.

Also, note that you cannot claim HRA if you live in your own house. Ensure you keep your rent receipts handy to submit for claims. Further, any electricity or maintenance charge borne by you cannot be claimed as HRA.

Employee Provident Fund

This is an investment jointly contributed by the employee and employer to meet an individual’s expenses after retirement. Such contributions to the EPF are eligible for tax exemptions under Section 80C.

Although it is mandatory to contribute 12% of the basic salary, an individual can
make use of a voluntary provident fund contribution to contribute more percentage of their basic salary.

This will result in building a larger retirement corpus and maximising tax benefits under Section 80C for the further amount that is contributed.

Mutual Funds

Equity-linked saving schemes, commonly known as ELSS schemes, helps not only save your taxes but also double up as one of the high-return investment options. Schemes that have a lock-in period of 3 years or more are eligible for tax exemption under Section 80C of the Income Tax Act.

Donations

Charity donations are allowed for exemptions under section 80G. Do remember to obtain a receipt on all such donations to avail of tax exemptions.

Also, it is important to note that payments should be made in cash or cheque and
not in any other form, such as clothes, food, and other gifts.

Education Loan

Many of us depend on loans to fund our higher studies either in national or foreign universities. Interest paid on educational loans taken for higher studies is eligible for exemption under section 80E.

This can be availed for your spouse or children as well. This benefit is applicable until the interest component is fully paid.

A Person With Disability

For any individual with a disability as certified by the medical authorities, further tax exemptions can be availed under Section 80U. Deductions in the range of 75000 to 125000 can be availed based on the severity of the disability.

Identifying The Right Financial Products

The salaried individual works with the HR and Finance team in his organization to
restructure their salary to avail food coupons that are tax-exempt, reimbursements on telephone expenses, transport allowance, medical and educational allowance.

However, this is not completely sufficient and further needs investments in the correct financial products to maximize savings and prudently plan to ensure that we are saving taxes under all category heads that we have seen.

Tax planning and wealth management go hand in hand. A P2P Lending platform like LendBox provides you with multiple lending options at your finger-tips when it comes to choosing a financial product.

Here you can build and diversify your portfolio, to maximise your deductions that apply under the various sections of the Income Tax Act and also earn high returns based on your risk appetite.

Being a wise tax planner is the first step in reducing your cash outflow and then
investing your savings efficiently goes a long way in building a good retirement corpus to live without worries during your old age or plan for any financial needs that may arise.