As an Indian taxpayer, understanding how to make the most of your income tax allowances and deductions is crucial for effective financial planning. This article will guide you through key strategies to help you save money and manage your taxes more efficiently.
Tax planning involves arranging your finances to minimise tax liabilities while following the law. It's not about evading taxes, but rather using legal methods to reduce what you owe.
There are two main types of tax planning:
This approach focuses on reducing your tax burden for the current financial year. It involves making timely investments or taking advantage of deductions that can lower your taxable income right away.
For instance, contributing to retirement savings schemes, purchasing tax-saving instruments, or claiming deductions on medical expenses are ways to reduce your tax outgo within the current year. Short-term planning is typically reactive, based on the tax-saving opportunities available before filing your tax return.
Long-term planning involves setting up a financial plan with future tax benefits in mind. It’s proactive and aligns with your long-term financial goals, such as retirement, children’s education, or buying a house.
By investing in options like Public Provident Fund (PPF), National Pension System (NPS), or other long-term savings plans, you can consistently reduce your taxable income while securing your financial future. This approach takes into account not just the current year but also aims to provide tax savings over several years.
Contributing to retirement accounts is a smart way to reduce your taxable income. In India, you can invest in:
These investments not only secure your future but also offer tax benefits under Section 80C and Section 80CCD.
Paying for health insurance isn't just good for your health – it's good for your taxes too. Under Section 80D, you can claim deductions for: