There are many things you can do yourself, or with the help of a tax adviser, to minimize the tax you owe at the end of each financial year.
Change the Way You Get Paid
Getting paid benefits in kind can have powerful tax advantages. These include opting for a company car rather than using your own and being reimbursed for it (although the extent of the tax break depends on the engine size).
Other perks such as food coupons can work out better than lunch allowances, as they are exempt from tax (up to Rs. 50 per meal in the case of food expenses). Don’t forget that medical, transport and education allowances, as well as sundry expenses such as phone allowances, can be tax-exempt, depending on the company you work for. Of course, you must keep all receipts.
Make Full Use of Your Tax-free Investments
Investment is a complex subject with many options relating to different investment vehicles, but the basics are simple: you can claim tax deductions under Section 80C of the Income Tax Act, including savings and investments of up to Rs. 150,000 on life insurance, National Savings Certificates, the Public Provident Fund (offering tax-free interest of 8.7%), in a range of equity-based savings schemes as well as tuition fees for up to two children and on some five-year fixed deposits.
Further options include deductions for personal medical insurance for yourself, your spouse and children up to Rs. 15,000 and of up to Rs. 20,000 for parents older than 65. Donations you make to charity will also be tax-exempt.
Tax Deductions on Home Mortgage
You can claim tax deduction of up to Rs. 100,000 on the principal part of your home loan and up to Rs. 150,000 on the interest. Self-occupied properties classify for tax breaks, while second houses will still attract tax payment based on their deemed rental value, so make sure you let out any second properties. You will then be able to deduct the interest you pay on the property from the rent you receive.
Claim for Rent Allowance
If you are renting an apartment in order to work (maybe in another city or country) without being paid any house rent allowance (HRA) by your employer, you can claim the least of the following: 25% of the total income; Rs 2,000 per month; or the excess of rent you paid over 10% of your total income.
Make the Most of Your Pension Allowance
Any contributions you make towards your employee provident fund personally under Rs. 150,000 a year are exempt from tax. The increasingly popular New Pension Scheme offers a convenient and flexible way to set up pension contributions.
While these tips are helpful, make sure you are not just making haphazard investments for the sake of the tax breaks without first considering your long-term savings goals. Determine what you would like your money to work towards, and make investments accordingly.