By Sthitaprajnya Panigrahi
Tax planning is generally referred as the art of minimizing the tax liability by making the finest use of the available tax benefits. In order to streamline your funds by saving money on taxes, it is important to plan your taxes accordingly. There are many options such as exploring and investing in tax-saving instruments such as Mutual Fund plans, and Insurance, but to plan taxes through these options, it is first obligatory to understand some important tips.
Estimating Your Annual Income:
Efficient tax planning can help the individual to save significantly for a longer time period. Smart tax planning is such a beneficial option for the beginners that it can help them to make the most of their income and achieve their financial goals too. So, starting with the first step, the ideal beginning for effective tax planning is assessing your annual income in order to calculate the probable taxable revenue and liability. This should include income from your salary, alimony, cryptocurrency you have invested in and real estate you've sold. Once you get an idea of your anticipated liability, you can find ways to lessen it via numerous tax saving products.
Avoid Taking Rushed Decisions:
After getting a fair idea about your tax obligations, you can successfully plan numerous investment and expenses strategies to save tax. you can even start investing every month in tax-saving instruments available in the market. This early planning not only gives you more time to study the various available options in detail and pick the ones most suitable for you. Apart from enabling you with more liquidity this will also help you with higher returns at minimum risk and stop you from making hurried last-minute choices.
Preserving Bills and Receipts:
During the fiscal year, there might be certain expenditures you experience, for which tax breaks and deductions can be demanded. To prevent such sticky situations, you should keep the bills and receipts of all such transactions accessible. If convenient, you can maintain a diary for these receipts or store them online in your mobile phone applications. These credentials will be useful during the tax filing.
Many Companies permit to streamline a few salary components to reduce your tax liability. If you are maintaining good relationships with your HR department, you can talk to them about getting certain grants included in your salary. For example, you can opt for food coupons instead of lunch allowances, as they are excused from tax up to approx. 60,000 p.a. Additionally, few other allowances covering medical, education, transport, and telephone expenses can be included as the part of the salary as they are non- taxable.
House Rent Allowance:
Almost all employees generally obtain a House Rent Allowance (HRA) from their employers and just in case you don’t have this component encompassed in your salary, you can ask your employer to do so. As an employee/staff you are always entitled to exemption on HRA under the Income Tax Act if you reside in a rented house and receive rent grant from the employer.
Donations for Charity:
Charitable contributions are nondutiable up to 10% of your income under Section 80G. However, candidates must ensure that they obtain a receipt from the institution and a copy of their income-tax exemption certificate instead of giving away the donation without any acknowledgment. Only if you can show receipts of the donation, you will be entitled for tax deduction by contributing towards a noble cause