In life everyone dreams of big houses, expensive cars and lavish lifestyles. But with the current market scenarios, the increase in salary, there come an increase in expenses.
Each individual plan their income and outcome to maintain an optimum balance between earning and expenses. But there are some times when you make mistakes which you should have avoided.
People often make some common mistakes while paying taxes which bear a greater loss in a broader sense.
Here are five common tax paying mistakes salaried people should avoid to properly manage their finances.
Not Planning Tax Saving Investments
The first mistake a salaried person commits is he/she does not plan his/her tax saving investment. Any person receiving a salary which comes under chargeable tax has to pay a nominal amount of its salary as a part of income tax.
Proper tax planning and having some tax saving investments is the first step to managing one's finances.
Tax planning remains one of the most daunting and tedious tasks for most salaried individuals. This is because even a small mistake in planning your income taxes may make a dent in your otherwise sound finances. Quite naturally, a large fraction of salaried individuals are often in a lookout for iron-clad and quick tax planning tips in order to do income tax planning in a way that it doesn’t really leave them in a lurch during the tax season. If you too have been looking for such quick tips, you are in a for treat. We have carefully compiled a short list of 5 quick income tax planning tips to help you save your salary from getting depleted while paying your taxes.
Every person has to pay the taxes to the government, but a for lower income person, it is not possible that he would pay a large amount his income as a tax to government due to more responsibility of his family. No need to hesitate, there are numerous way to save taxes and need to make a smart income tax planning to save tax.
How you can save thousands of your income through investing under section 80D of income tax act 1961. If you have bought the health insurance policy for yourself and your spouse, children and parents then you are eligible for tax deduction under the section 80D. Check and get the benefits.
According to Income Tax Act, 1961, there are various sections.
Tip 1 –Section 80C is Your Best Friend
Section 80C can help salaried individuals save a sizeable amount of their salary. In fact, there is no bigger section than Section 80C when it comes to taxation of salaried people. It makes sense to carefully mull over the tax savings options under Section 80C in order to reduce the tax liability and minimize the earnings. Under Section 80C, one can avail tax exemption of as much as Rs. 150,000.
Tip 2 – Kick Start by Saving Rs 150,000
As discussed above, you must carefully look at Section 80C and try to avail the tax exemption limit of Rs. 150000 under this Section first. Consider some of the most common yet lucrative options such as life insurance, Public Provident Funds (PPF), Tax Saving Mutual Funds, National Saving Certificate (NSC) and much more. Carefully choose one of these options depending upon your future financial goals, income and requisites. Do seek help of financial planners to know how to maximize your profit using these investment instruments.
Tip 3 – Remember Important Options
While it may seem lucrative to invest in many investment instrument that may help you save under Section 80C of the Indian Income Tax Act, it makes sense to carefully mull over the instrument that you believe will help you in the long run. Investment instruments such as life insurance, EFP, and PPF are just some of the many options that remain a must have for any salaried individual, even if they are not investing for taxation purpose.
Tip 4 – Remember ULIPs, Pension Plans & Tax Saving Mutual Funds
Now that you know that you must carefully look at options that are immense benefit even in the farther future, it’s time to move on to the next level of income tax planning. Do remember to invest in ULIPs and tax saving mutual funds to ensure minimum risk, higher returns and in order to avail tax benefits. In case you are looking to invest in a pension plan to ensure better lifestyle post retirement, you may avail a tax exemption for the premium payments under Section 80CCC. If you choose to invest in NPS (New Pension Scheme), you can avail tax benefits of as much as Rs. 50000 under the Section 80CCD of the Indian Income Tax Act.
Tip 5 – Home Loan Benefits
If you have taken a home loan to finally get a roof of your own, you can claim a tax exemption on the same as well under Section 80C of the Indian Income Tax Act. In addition, you can claim tax exemption on the interest payment of your home loan under Section 24 of the Indian Income Tax Act. Under this section, maximum tax exemption of Rs 2 lakhs on the interest for loans can be availed. If you have taken home loan for the first time, you can avail an additional exemption of Rs. 50,000 on the interest being paid towards your home loan under Section 80EE of the Indian Income Tax. However, to qualify for this exemption, your loan must have been sanctioned in the financial year 2016-17 and the total loan amount must not be more than Rs. 35 lacs. Furthermore, the total value of the house must not be more than Rs. 50 lacs. It is also mandatory to have the house registered I the name of the assessee.
Over to You!
With these 5 easy to follow income tax planning tips, we are sure you will be able to ensure tax saving and also score a sizeable savings to help them carve a better financial future.