Besides the fact that taxes are often perceived as a financial burden, a lack of awareness about financial planning only adds more to the stress. A majority of taxpayers fail to fit the tax-saving piece into their financial puzzle. Maybe it’s time to teach students taxes when they’re still in school to train them for the unavoidable taxes as adults.
If this is something you can relate to, then fear not. To ensure your tax-planning journey is smooth sailing, we’ve compiled a comprehensive and elaborate tax-saving guide.
How can you save tax: A brief insight on the Income Tax Act
In 1961, the Income Tax Act came into effect. All activities relating to the collection, imposition, administration, and recovery of tax on income are covered by the Income Tax Act. Over the years, it’s of course, gone through several changes, the latest being its divergence into old and new tax slabs.
Being a taxpayer, you will have several income sources, and your income or gains in a given fiscal year incur taxes.
As an individual, you have to pay taxes to the government, whether you are an employed person or an entrepreneur. While you’re at it, here’s how you can indulge in some tax saving, particularly under section 80C and 80D of the Income Tax act.
- To limit your taxable profits, do remember to use section 80C to your advantage. Made any investments in a PPF? Or an ELSS Mutual fund perhaps? Section 80C will allow you to shave off up to Rs 1.5 lakhs from your taxable income.
- Purchase medical insurance & assert a premium exemption on medical insurance of up to Rs. 25,000 (Rs 50,000 for Senior Citizens) under Section 80D.
- Do remember to claim a deduction under Section 80EEE of up to Rs 50k on your home loan interest.
- If you don’t have many deductions to claim, seriously considering opting for the new income tax slabs to lower your effective tax rate. Check out this official old slab vs new slab tax calculator to determine which one saves you more tax!
Checklist to follow while preparing your ITR
The following are some of the key items to note when filing income tax returns:
1. Quoting Aadhaar is mandatory
India’s Supreme Court asked the government to make quoting Aadhaar compulsory for all citizens. Thus, when filing the income tax return, the taxpayer must mention all the digits of the Aadhaar number or the Aadhaar enrolment number.
2. Main Changes in FY16-17 ITR Forms
Some changes have been made by the tax board. Firstly, from nine to seven, the quantity of ITR forms has been reduced. Only ITR 2 is in use now.
3. It is critical that all bank account numbers and IFSC codes are listed by taxpayers in their ITR. However, it is not appropriate to note inactive accounts that have been in-operational for the last three years.
4. By now, all individual taxpayers from their respective employers must have obtained their Form 16. Type 16 is the employer’s certificate. It has information on the wages paid to you by them and the taxes deducted from it. Form 16 shall be issued on or before May 31 of the next year, once for a specific financial year. The taxable pay referred to in Form 16 shall be included in the income tax report under the pay head.
5. It is possible to download Form 26AS from the income tax website. This form has all the TDS that has been deducted from your income(s) in detail. It requires TDS deducted on wages and the same can also be seen in this tax credit statement when there is any TDS deducted on fixed deposit interest.
The Relationship Between Taxes & Financial Wellness
Financial wellbeing or wellness, in very basic terms, refers to the practice of handling one’s economic life effectively and efficiently. Financial well-being is a blend of understanding your investments, making sound financial choices, and consolidating other significant aspects of your life with financial decisions.
As you can guess, an optimal state of financial wellness would involve prudent tax decisions that not only save you money but even generate more income via investments. After all, financial wellness means the ability to successfully handle short-term finances and simultaneously plan for the achievement of long-term objectives.
So whether you’re filing your taxes for last year or planning for this one, some tasks are consistently worth remembering to do:
1. Have the right budget that factors in both savings and investments.
2. Keeping a tangible track of all documentation, bills, etc. to avoid last minute delays or even losses.
3. Don’t over-optimize your budget so save taxes. Be financially prepared for any emergency of any sort.
But perhaps most importantly, be ready to leverage the right tools to assist you financially whenever the need arises. For example, EarlySalary’s Credit Suite will be at your service for all needs – from instant, short-term loans and free credit score checks, to a class-leading SalaryCard that allows you to pay on the go.
In other words, taxes or no taxes, savings or no savings, you’re well-covered for all financial eventualities with the EarlySalary Credit Suite.
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