Income tax can be quite a drain on a person’s annual income. Since it is unavoidable, there is nothing we can do to run away from it. But we can definitely find ways to reduce the capital amount on which this income tax has to be levied. In today’s guide, we will discuss the ways in which we can lower our taxable income and save on our income tax.
Is it legally possible to lower the taxable income?
Yes, the law allows us to legally lower the taxable income. Although there are ways of doing that, it may sometimes seem tiring. But the results are relieving and help save a good amount of money. The Indian Income Tax Act of 1961 allows earners to have a few deductions in a legal manner. However, we must remember that there is no evading an income tax. It is a criminal offence and can land a person behind the bars.
What is the Indian Income Tax Act of 1961?
The Income Tax Act of 1961 states the rules and brackets under which the income tax will be collected from people. It talks about the regulations and methods of relieving a certain part of tax under certain conditions. It states the commons and the exceptions of the matter and has 298 sections explaining the same. It is followed in India while collecting taxes from the employed section of the society and adding it to the central wallet.
Methods of reducing the taxable income
The statement – ‘Reducing the taxable income’ doesn’t mean that you have to reduce your income, but the part of it that the government will see and levy tax on. Here are a few ways that one can try in order to reduce his/her taxable income –
- Having health insurance – If you have health insurance for yourself or somebody related to you, that amount may get deducted from your total income before the tax is incurred.
- Having a home loan – If you have a home loan under your name, you are also provided with some relief in that matter. Section 80C allows the relief of the deduction of the capital amount paid to the lending bank from the total taxable income. Even Section 24 mentions that the taxes levied on the home loan are also deducted from the taxable income of the employee.
- Having an education loan – If you have an education loan under your name, your spouse’s name or your child’s, the tax on that loan will be deducted from the capital amount of income before the tax is levied.
- Rajiv Gandhi Equity Saving Scheme -This scheme states that if a person has an annual income of less than Rs. 12,00,000, and he/she invests in mutual funds or stocks, then he/she can claim a deduction on the income. But it is only available for the first-timers in investment.
- Fixed Deposits – There are a few 5-year Fixed deposits that can give a deduction of up to Rs. 1,50,000. However, the interest received on the FD is taxable.
While these are the major ways in which taxable income can be reduced, there are other legal ways that one can try. This includes having a “National Saving Certificate“, following the “Sukanya Samriddhi Yojana” and much more!
