Income tax is a government levy that is imposed on individuals or entities such as individuals/citizens, trusts, companies and organizations. The taxation rate tend to vary with the income or profits shown while auditing, which is the taxable income of the taxpayer/organization.
Tax Planning is an extremely crucial part of financial planning. No one likes to surrender their hard earned money as taxes! And this fact makes planning for taxes, important. Everyone should plan in such a way so as to get the maximum advantage and benefits of all provisions available under the Income Tax Act of 1961. As the time to pay taxes comes closer, the one thought niggling at the back of everyone‘s mind, is how you could possibly save on some of your taxes. Albeit, in a completely legal way.
Where should I start?
These days the internet has given us a wealth of information and tools to help us with understanding all aspects and clauses of the Income Tax Act. You can use an online income tax calculator to determine how much tax you‘re actually required to pay.
Online tax calculators are available on websites of financial services companies. All you need to do is to put in your income earned, profits from various investments, mediclaim, donations and other similar financial instruments and how much you have invested in them, and the calculator will help calculate the amount you are required to pay as your income tax.
You‘ll be able to find a number of income tax calculators based on rate of taxation in India; But what is important is that you select a calculator provided by a reputed financial services company; a company that has a legacy in the Financial Services sector. They will help you accurately realize your tax liability, on the basis of your earnings and savings under various income tax provisions.
If you invest right, you will end up paying less on your taxes.
Our government has given us various ways to save tax and it will be beneficial to keep these income tax provisions in mind. There are several ways in which you can save on your taxes, for example, by investing in specific mutual funds and fixed deposits. For instance, if you invest in mutual funds, the amount invested in tax-saving funds/Equity Linked Saving Schemes (ELSS) is eligible for a deduction under Section 80C, up to a limit of INR 1,00,000 only, in one financial year.
Also, dividend received from investing in any Mutual Fund Schemes that are tax-free comes right into the hands of the investor. The investor will also get Indexation Benefit under Long term Capital Gain in Debt schemes clause.
Another financial tool you could invest in to save on income tax would be Company Fixed Deposits. No Income Tax is deducted if the interest received is up to INR 5,000 in one financial year. Use an online income tax calculator to find out how much taxes you owe.
Remember, if you have invested in the above-said tools then you might be paying a lot less than you thought.