5 lesser-known tips which can help you save tax

5 lesser-known tips which can help you save tax

New Delhi: When people start their career and get their first job, they often do not care much about tax saving since the salary is low. However, as the salary goes up with time and promotion, so does the tax liability. This is when tax-planning becomes important because if they do not invest in tax-saving instruments, their tax outgo is higher and they are not able to save much for their financial goals or retirement corpus.

Sometimes, when people see their salary statement and the amount of tax being cut, they realise the importance of effective tax planning and start looking at tax-saving options. A majority of people invest in instruments eligible for tax deduction under Section 80C of the Income Tax Act. However, people often stop further tax-saving investment after claiming deduction under Section 80C. A lot of people fail to take advantage of some lesser-known tax saving avenues available.

Here are 5 lesser-known tips which can help you save tax:

1. Re-invest old tax-saving investments: A lot of people may not be aware that once their old tax-saving investments have crossed the lock-in period, they can withdraw the money and reinvest in tax-effective investment instruments to earn tax benefits without having to shell out more money. Know that while schemes such as PPF allow partial withdrawals upon finishing seven years from the time of investment, a tax-saving instrument like ELSS come with a three-year lock-in period which can be withdrawn entirely or partially. This way, by reinvesting your old tax-saving investments, you can save tax.

2. Planned MF redemption: A lot of mutual investors often redeem their mutual fund investments whenever they need the money. However, this could result in high capital gains in a particular financial year. As per Income Tax Rules, Rs 1 lakh of long term capital gains from equity investments (stocks, equity mutual funds, etc) are tax-free per financial year. So, investors should redeem investments in a planned manner to save more tax. Instead of booking a large amount every four or five years, investors should book long term capital gains of Rs 1 lakh every year so as to keep their gains tax free.

For example, In case you need money in the first quarter of a financial year, you can redeem some units in March (the previous financial year) and remaining units in April (current financial year). This way you can claim Rs 1 lakh exemptions each in two financial years.”

3. Charity: Some are not aware that you can save tax on the amount donated to charities. Under Section 80G of the I-T Act, any donation to charitable organisations is eligible for up to 100% tax exemption. Donations to PM’s Relief Fund, CM’s Relief Fund, Earthquake Relief Fund and Flood Relief Fund, are eligible for 100% tax deduction. For any donation to an NGO, employees can claim a 50% deduction on the donated amount.

4. Pre-school fee: Many taxpayers are not aware that they can claim an income tax deduction on their child’s tuition fees of pre-school, i.e. pre-nursery and nursery. Tuition fees of pre-nursery and nursery are eligible for deduction under Section 80C of the Income Tax Act. However, the benefits are restricted to only two children. So each parent can claim a tax deduction on the fees for two children.

5. Saving tax with the help of parents: If you have some savings, you can transfer your savings to the fixed deposit (FD) accounts of your senior citizen parents and earn tax-free interest of up to Rs 50,000 in a financial year from each of their accounts. Your parents can then invest the fund in other tax-saving schemes which are eligible for deduction under Section 80C such as SCSS to fetch more return. Also, remember that home loans even from parents are eligible for tax deduction benefits under Section 24B for the interest payment you make. However, you need to have a proper interest certificate from your parents as proof of interest payment.


Source:- timesnownews