Best Income Tax Saving Options 2022
It is vital to grasp the tax slabs to see how much you may save on taxes. Taxpayers are split into income tax slabs based on their yearly income as per the new income tax rules. Thus, if you are seeking a means to save on taxes, you may either invest your money in stocks and insurance or keep it aside for the future. You may also use the various permits to save money on taxes. Some tax-saving tips are given below.
Income tax savings options as per the new income tax rules
- Equity-Linked Savings Schemes (ELSS)
Equity-Linked Savings Schemes (ELSS) are broad mutual funds. The new income tax rules allow for a tax deduction of up to Rs. 1.5 lakhs per year for Section 80C investments. You may earn returns in two ways: through dividends or growth.
ELSS is an equity-based plan that invests 65% of its assets in shares. Dividends from these plans are not taxable. This means it is tax-free for both dividend-paying and long-term users. Yet, given their returns are dependent on stock prices, it is urged that you spread your assets among various ELSS.
- Long-Term Capital Gains on Long-Term Asset Sales
Long-term capital profits from the sale of long-term financial assets. The tax has been levied on sales of stock shares and equity-linked mutual funds. It is treated as a long-term asset if you have owned it for three or more years. Section 10(38) is used to exclude any capital gains from the sale of such an item as per the new income tax rules. Yet, the current budget states that long-term capital gains are taxed as of April 1, 2018.
But it isn’t all bad news. Current traders have been granted an exemption for capital gains made up to January 31, 2018. For example, suppose you bought a share in 2017 and sold it in July 2018 for a cost of Rs. 125. If your stock was worth Rs. 111 on January 31, 2018, you won’t be taxed on the Rs. 10 in capital gains.
- Income from Farming
The Indian Revenue Tax Act exempts all agricultural income from taxation according to the new income tax rules. This is done in a bid to boost the agricultural sector. Farmland leases, profits from goods, and income from farmhouses are all tax-free.
- Public Provident Fund
To avoid taxes, the government has created PPF Accounts under Section 80C as per new income tax rules. PPF investment gains are tax-free. The rate of interest on PPFs changes quarterly. For instance, if you are in the top tax bracket (30.9%), you will get a tax refund of 11.28%, saving you a major sum of money. You may create a PPF account at an approved post office or banking outlet. This is open to all, including minors. It is perfect for you if you choose low-risk investing and do not wish to deal with unstable mutual funds or stocks.
- Education Loans
The tax paid on debts for higher education, whether for oneself, one’s wife, or one’s kids, is tax-free under Section 80E. There is no limit on this sum as per new income tax rules. Only the sum of interest paid is taxed, not the capital.
- Scholarships for Higher Education
Scholarships or prizes given to students are exempt from taxation under Section 10(16) of the Income Tax Act. There is no cap on the amount, and the full payment is used for the scholarship.
- Donations of Time
You may claim tax deductions for charitable offerings or philanthropic activities. Donations to the National Relief Fund are also deductible under Section 80G. Depending on the cause of the donation, certain donations are tax-exempt at 100%, while others are tax-exempt at up to 50%. Deductions may only be made for cash or check payments.
- Mortgage Loans
A house loan displays how to save taxes in India five times over. There are three methods to save money on taxes by using house loans. You will save a lot of money as a result of this. Section 80C deductions permit you to reduce the debt repaid within the current fiscal year. The maximum deduction is Rs. 1,50,000.
Section 24 permits you to deduct any interest paid on your house loan up to Rs. 2,00,000. First-time buyers may receive a grant of up to Rs. 50,000 under Section 80EE. You may even get another home loan if you live in the house where you got your first one. The tax deduction for a second home loan is infinite.
- Income from Savings Accounts
Savings account interest up to a limit of Rs. 10,000 may be taken as a deduction under Section 80TTA. It is not completely tax-free since anything above Rs. 10,000 is considered taxable. It is declared on your ITR as other sources of income and is ultimately deducted in line with Section 80TTA. - Standard Insurance
The insurance plan has a set investment duration and a guaranteed sum. These are either whole-life insurance or money-back guarantees. The premiums are tax-deductible under Section 80C, but the plan’s value is tax-free upon death or maturity. However, it is vital to show that they are rigid and the rates of return are poor.
How should you budget for tax savings this year?
It would be best if you managed your taxes for the whole year, considering the new income tax rules. Yet, most tax planning occurs during the investment phase. You may pick tax-advantaged assets with EEE (exempt, exempt, exempt) status when investing:
- Investment in insurance plans qualifies for a tax break.
- The interest earned in the programme is tax-free.
- The maturity value (including any withdrawals) is tax-free.
In this manner, you won’t have to develop a separate tax strategy once you’ve completed your goal and asset plan as per the new income tax rules. Your purchases must always be prompted by long-term financial goals rather than the short-term urge to save taxes. It would be best if you maximised your tax savings while staying within the parameters of your goal-based investing.
Conclusion
There are several other methods for saving taxes in India as per the new income tax rules. Amounts given in marriage or inherited via a will are tax-free. Acquiring medical insurance benefits qualifies you, your spouse, and your kid for a tax deduction.
Business persons may deduct travel and meal costs using the methods listed above. Salary taxpayers may save tax by using trip expenses and dwelling rent credits.
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