Tax planning is an important aspect of the life of a salaried professional. It helps an individual to effectively save on taxes and invest that amount of money in an asset or save it to maintain the emergency fund.
There are multiple options that a government and the central authority offer to its citizens to save on taxes for the welfare of the person based on certain criteria. Thus, it becomes important for a person to understand the liabilities and reduce them as much as possible.
In this blog, we will look into some of the prolific measures one can take to plan their taxes effectively and save in the process.
Understanding Deductions and Exemptions
For the people in the Indian Subcontinent, the 80C of the Income-tax Act, 1961 provides various deductions to the Indian taxpayers and helps to reduce their taxable income. Here, one can take the help of a DSA partner who can help a person with their tax planning and allow them to take advantage of it.
Employee Provident Fund (EPF)
EPF is a retirement savings scheme that is mandated by the government and helps salaried employees in organizations with more than 20 employees. One of the main aspects of the EPF scheme is that in this account, both the employee and employer contribute, and that comes as a saving fund for the employee, which is deductible under Section 80C.
Public Provident Fund (PPF)
It is a saving scheme offered by the government for the long term with the objective. A person can use that fund for retirement savings. It is useful for those employees who are working in the unorganized sector and offers them a tax-free interest, which a person can gain in that account by keeping an amount of 1.5 lakhs per annum.
Equity Linked Saving Schemes (ELSS)
ELSS is a type of mutual fund that invests primarily in the equity market and other related instruments, which are derivatives of it. Certain mutual funds there provide the ELSS scheme to its customers and offer them the option to deduct the ELSS amount from the taxable income under the scheme of ELSS.
Now, apart from that, there is a provision under Section 80D that allows a person to save on taxes by taking health insurance, which comes under this criterion. That amount can also be deducted and removed from the taxable income.
Maximizing Tax Savings Through Investment
Now, investment is a great option that allows a person to save on taxes and keep the money in those sectors where a person can witness the appreciation in asset value.
For example, investing in the ELSS mutual fund, the National Pension Scheme (NPS), and Sukanya Samriddhi Yojana are some of the key investment vehicles where one can keep money to reduce taxes.
Now, based on one’s financial appetite and risk-taking ability, one can choose a fund or investment asset where they can keep the money and continue on their investment journey. It is through the use of the right investment avenues and financial goals one can strategize one’s future.
For a person who is willing to understand the tax process and give people advice on this matter, they can choose to apply for the SBI DSA registration or from some other bank, which is helpful for giving the person credibility.
Utilizing Permissible Exemptions
The people in the Indian Subcontinent can take advantage of the House Rent Allowance (HRA) and Leave Travel Allowance (LTA), which are given to people when they can show proof of where they are paying the house EMIs, which helps them to reduce the EMI amount from the taxable income.
One must go through the proper documentation and tax compliances before applying for the exemption, as it’s important to check the parameters before applying, as that will help the person stay sure and avoid penalties.
In the case of Leave Allowance, a person, if possible, can show the proper proof of their leave and show that travel is a business expense, then, in that case, can get the opportunity to reduce that amount from the taxable income and get a chance to reduce the tax amount and ensure lowering the total tax amount.
Through these means, one can approach tax savings and make goals on investing more and in a better way for their long-term financial planning.
