People are always on the lookout for ways to save tax, legally or, more often than not, investors just stick to the methods they know and unfortunately miss out on more productive ways of saving tax. Traditional ways of saving tax in the form of the National Pension System (NPS), Public Provident Fund (PPF), National Savings Certificate (NSC), and insurance policies have always been there. Nonetheless, new ideas like that of online mutual funds have covered many drawbacks. If you feel that you have been paying a large part of your income on taxes, then it is very likely that you have not planned your taxes well. Read on to know about some tax saving schemes in India.
Distribution of profit in a partnership firm: Partners of a partnership firm can opt for this option when the firm is making profits and the business holders decide to share the same among themselves. When HRA is not a part of the salary: Salaried individuals can save tax incurred on their salary when HRA is excluded. This can be done either by subtracting rent from 10% of income, 1/4th of the total income, or a flat rate of Rs. 5000 every month. These deductions are included in section 80GG. Invest gifted money in a tax-free instrument: Investors who have exhausted their 80C limit need not worry; they can always transfer some money to their non-working spouse or minor child, only to invest that sum in a tax-free instrument such as ELSS funds or PPF, tax-free bonds and Ulips. The gift tax rules will not be applicable to your or your spouse’s lineal descendants or ascendents. You thus have the leverage to transfer any amount, and since you will be investing in a tax-free instrument, tax liability will not be incurred even on the clubbing of income. Sale of equity shares: In order to motivate people to invest more in equity shares, the Indian Government has exempted tax on any long-term gains earned through the sale of equity shares. However, tax here is exempted only if people hold these shares for more than a year. Seeking loans for education: Are you concerned about your child’s education? As per section 80E of the Income Tax Act, the interest paid against an education loan is not taxable, so investment in loans will be a useful and safe option. Luckily, there is no specified limit for this category. Online mutual funds: Tax saving mutual funds carry the benefits of mutual funds with the tax-saving benefit. With a majority of this system being shifted online, cumbersome paperwork can be avoided. Many online mutual funds carrying tax benefits include ELSS schemes, allowing investments in a growth-oriented equity market. The corpus of the fund is invested in the equity market in a contained way. Even if an investment incurs losses, the other investment is capable of mitigating that loss.
Tax saving has become easy in many statutory and practical ways. You can consult your fund manager for detailed knowledge about these.