Tax planning is a crucial part of financial planning for individuals and businesses, respectively. Using the appropriate strategies, it is possible to minimise your tax liability and save as much as possible. It is a well-known fact that tax season can be a difficult time for unprepared individuals, particularly if you are unsure of how to reduce your tax liability. If you are uncertain how to reduce your tax liability, consider these tips for saving money during tax season.
- Invest and allocate your expenses accordingly
Investing and spending prudently can reduce your tax liability. If you intend to sell real estate, you should hold it for a minimum of two years to avoid capital gains tax. Moreover, if you are in the midst of paying off your home loan, it is highly suggested that you do so as soon as feasible to be allowed for Section 80C deductions.
- Make a claim for a deduction for health care expenses
Section 80D of the Income Tax Act specifies thatseniors (aged 60 years or older) are exempt from income tax if they incur medical expenses during the course of a financial year as a result of their age. You may be subject to a deduction for the amount you pay for your own medical coverage. These coverages are in addition to the health insurance coverage you provide for your dependents. Additionally, individuals may obtain benefits from routine medical assessments worth up to Rs. 5000, which may be paid in cash.
- Make sure you are participating in the National Pension System (NPS).
Besides giving retirees fiscal benefits, the National Pension Scheme (NPS) also features an investment strategy specifically designed to respond to retirees’ financial needs. As part of Section 80C of the Income Tax Act, you can be entitled to declare a deduction for contributions made to the NPS up to a limit of Rs. 1.5 lakh. As a result of your NPS contributions, you may be entitled to a tax benefit of up to Rs. 50000 pursuant to Section 80CCD(1B).
- Consider engaging in investments in tax-saving instruments.
An investment in tax-effective instruments is one of the most effective ways to minimise taxes. As an example, there are Public Provident Funds (PPFs), National Savings Certificates (NSCs), equity-linked savings schemes, and tax-saving fixed deposits (FDs). It is imperative to note that investments not only save money but also provide a high return on investment. If you choose to invest through these instruments, you can claim tax deductions under Section 80C of the Income Tax Act if you do so.
- Donate to charitable organisations.
Donations to charitable organisations benefit the donor in two ways: as a noble act and as a tax reduction. Based on Section 80G of the Income Tax Act, an individual, company, or HUF may deduct 100 per cent or 50 per cent of donations to charitable organisations. Take into account donating to a registered charity before March 31 in order to take advantage of this deduction. If you wish to file your tax return, you must obtain a receipt.
A key element to minimising taxes is having a comprehensive knowledge of tax laws. You also need to plan your expenditures and investments carefully to minimise taxes. You can reduce your tax liability and enhance your savings by investing in tax-efficient instruments, claiming deductions, utilising tax benefits, and arranging your finances in such a manner that you minimise your tax burden and increase your savings. To ensure that your choice of investment or tax-saving activity is in line with your financial goals and risk appetite, it’s crucial to discuss it with a financial advisor before undertaking any investment or tax-saving activity.