When its the end of every financial year and you get Goosebumps -on how to show investment proofs to save tax? Are you still understanding HRA, insurance, LTA, and medical claims? Are you scared if after submitting proof still, you may attract Income tax notice? Its better you save at the beginning of the financial year and inform your company the same.
Common Mistakes Which Attract Income Tax Notices
How often have you heard “a person who submitted all his proofs, filed a return on time, still got Income tax notice”?Here are some of the common mistakes that could attract an Income Tax Notice –
Account interest earned – Are you accounting for interest earned on Fixed Deposits, Savings Account, Recurring Deposits and infrastructure bonds? If not, make sure to account for these as well, even though
Banks have deducted a TDS
The tax exemption of Rs 10,000 a year under Sec 80TTA and is only applicable for savings account
Accounting for Income from Old Job – With thefrequent change of employers, individuals miss to account for the income earned through previous employment. Please note your new employer would not account for the income earned with your former It’s wise to inform your new employer about income from thelast job so that the TDS is cut accordingly.
File Your Tax Returns – Avinash’s mother was awestruck when she received an Income Tax notice, being a senior citizen and non-earning member she and Avinash were under the impression that they need not file the tax return. Please note that individuals whose income is above the basic tax exemption needed to file their tax returns for FY16-17.
Basic Tax Exemption
< 60 years
2.5 lakh per year
3 lakh per year
5 lakh per year
Home Loan Principal Repayment Reversal – If you buy a home and sell it within five years than tax benefits availed under section 80C for principal repayment need to be reversed.
Ending of Life Insurance Policy Within Three Years of purchase – Any tax deduction availed on a life insurance policy that is completed within three years would be reversed.
Buying property worth 50 lakhs or more needs to get TDS deducted – For any property bought for more than 50 lakhs or more, a TDS of 1 % is to be given to the government.
Not declaring foreign assets/gifts – Any income earned as a salaried/freelancer or as a gift need to be declared to avoid anotice’s from Income tax authorities.
7 Income Tax saving tips you might not know
Here are quick and easy tips that could help you save tax if you are not following these religiously start from today –
You could save tax on your future income if you gift money to your children.
If you have bought property recently, you could claim stamp duty and registration fees in under section 80C
Buying house with Siblings or Parents as joint owners could help you in saving tax. Also taking a joint loan will help both partners in tax deduction from their respective incomes.
Opt for education loan, to reduce your tax
If you have surrendered the insurance policy and received an amount not exceeding 20% of the sum assured, it would be tax-free
Long term capital gain are tax-free, so hold on your stocks or mutual funds at least for a year
Gifts received from your family; friends are tax-free.
According to Budget 2017, sale of immovable asset after 2 years, will be considered as long term capital gains and this amount would be subject to indexation benefits. Also the base year for indexation has moved to 2001-02 instead of 1980-81 which means the capital gains tax is lower.
How to save income tax through planning
Here are some handy tips that could help you plan and save tax on your hard earned money –
Salary Restructuring – You could ask your employer to restructure your salary such that allowances and expenses are differentiated. Some of the allowances in which you could save tax are –
Newspaper Magazines and Books
Telephone and mobile
Mobile and Internet
Leave Travel Allowance and Medical Bills – Tax exemption on medical bills of 15,000 for a financial year is allowed. You can produce statements for self and dependents [if your firm allows] under this category. Similarly, you can avail tax-free leave travel allowance twice in a period of 4 years.
Investments that are tax-free – Five years fixed deposits, or tax saving investment schemes are other methods on which you could save tax.
Charity Could save you taxes – If you have been giving money to a temple or any other place, it would be fruitful if you donate via cheque/online transfer to NGO’s/religious body/scientific institution’s that could be 100% tax saving.
On time tax Payment – Do not delay tax payment, as with every quarter individuals need to pay advance tax or otherwise there could be penalties.
Medical Insurance – Medical Insurance is another way that allows you adeduction, over and above the 1.5 lakh limit. An individual can save tax for the health insurance premium of his family and dependent parents.
Five Special Financial Tips for High-Income Earners
Falling under “High Income Group” may sound glamourous, but it also ask for more taxes, so here are quick advice you could follow to save tax legally –
Invest in shares and mutual funds for long term
Avail tax benefits while buying your dream home with a home loan
Debt funds if held for three years would be treated as long-term gain and would help you save tax
If you are an NRI you could choose to invest in the term deposits under the NRE (Rupee deposits) or FCNR (Foreign currency deposits) accounts,the interest earned from these is exempted from tax
Five ways to beat the taxman honestly
Many individuals try to hide their income to save tax. However, there are legal ways that could help you in saving tax –
Think of owning assets and property as joint-owners
Invest for long term
Avail loans if they could help in tax saving
Claim all allowances
We hope we have answered your queries on how you could save tax in a proper way.If you still have any unanswered questions or need help, feel free to contact us here.
We would be glad to help you with your planning and investment related decisions.