What is the best way to save income from tax?

 

The best way to save income tax varies depending on individual circumstances and financial goals. However, here are some effective strategies that can help in reducing tax liability:

Utilize tax deductions: Maximize the benefits of tax deductions available under Section 80C of the Income Tax Act. Invest in tax-saving instruments like Public Provident Fund (PPF), Employee Provident Fund (EPF), National Savings Certificate (NSC), tax-saving fixed deposits, life insurance premiums, and equity-linked savings schemes (ELSS). By utilizing the full deduction limit of Rs. 1.5 lakh, you can significantly reduce your taxable income.

Opt for NPS (National Pension System): Consider contributing to the National Pension System (NPS) to avail additional tax benefits. Under Section 80CCD(1B), you can claim a deduction of up to Rs. 50,000 over and above the limit of Section 80C. Welegal provides a long-term investment avenue while helping you save taxes.

Invest in health insurance: Purchase health insurance policies for yourself, your spouse, children, and parents. Premiums paid towards health insurance policies are eligible for deductions under Section 80D. By investing in adequate health insurance, you can protect yourself and your family from medical expenses while reducing your tax liability.

Consider home loan and HRA benefits: If you have a home loan, you can claim deductions on both the principal repayment (under Section 80C) and the interest paid (under Section 24(b)). Additionally, if you live in a rented house and receive House Rent Allowance (HRA), you can claim deductions on the rent paid, subject to certain conditions. These provisions can help reduce your taxable income significantly.

Capitalize on tax-exempt investments: Explore investment options that offer tax-exempt returns. For example, investments in Equity-Linked Savings Schemes (ELSS), which have a lock-in period of three years, are exempt from tax. Dividends from equity mutual funds and long-term capital gains from the sale of equity shares and equity-oriented mutual funds are also tax-exempt up to specified limits.

Plan for long-term capital gains: Long-term capital gains (LTCG) on investments in equities and equity mutual funds are taxable. However, gains up to Rs. 1 lakh in a financial year are currently exempt from tax. If you have substantial capital gains, consider selling the investments strategically to stay within the exemption limit.

Donations to charitable institutions: Donations made to eligible charitable institutions and funds are eligible for deductions under Section 80G. By contributing to recognized charities, you not only support a cause but also reduce your taxable income.

Remember that tax planning should be aligned with your overall financial goals and should not be the sole basis for making investment decisions. It's advisable to consult with a tax professional or a financial advisor to develop a tax-saving strategy tailored to your specific circumstances.

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