You are not the only one who sulks every year at the time of filing tax returns. The word itself may induce an ominous feeling at the end of every financial year. But taxes are not as bad as they seem. In fact, this money is pegged towards the country’s development and meant to benefit the public as a whole. Hence, it is crucial to understand how taxes work to avoid overpaying and learn how to avoid them best.
Did you know that tardiness and last-minute tax-saving investment decisions are one of the leading causes of high taxes? If you feel that you pay a lot of tax, then it is probably true. Many people end up paying more taxes due to a lack of awareness about tax-saving instruments, tax calculator, and how to calculate return of investment.
However, with little guidance and attention, you can avoid paying a significant amount of your income in taxes. Luckily, the tax rates in India are not unreasonably high, and there are plenty of tax breaks to help you save your money.
Although income tax is unavoidable, there is no reason for you to pay more than you should. If you are well-informed about the claim deductions, then you can save a lot of money that would otherwise be spent on taxes.
From an income tax calculator to declarations and deductions, the world of tax saving is vast but easy to navigate. Let’s discuss what you need to keep in mind to avoid paying too much taxes.
1. Identify and calculate your income properly
The first and the most crucial thing about saving taxes is to use the income tax calculator in identifying your income and capturing it accurately. It means thoroughly analyzing your income by going through your bank statements and credits made into your bank accounts.
As per Income Tax Act Section 14, the overall income should include not just your salary but also any income earned from capital gains, freelancing, business, and income from other sources such as interest from fixed deposits.
2. Calculate taxes accurately
Tax laws are subject to change with time, making it necessary for taxpayers to stay updated about the latest rules and regulations. For example, salaried people should know that new tax regimes allow them to save a 100% tax on their income if it is below Rs. 5,00,000 per annum. Knowing about these changes will help them use the tax calculator accurately in the computation of their income and taxes.
3. Provide Investment declaration to employers
Every investment claim you made at the beginning of the year to save money on TDS (Tax Deducted at Source) will have to be supplemented with relevant documents to avoid being taxed. If you do not submit the requisite documents, then you would have to pay a consolidated tax, which may eat into your entire salary for the last few months.
Many financial experts recommend the use of a tax calculator to calculate the investments and expenses that are eligible for tax deductions under the Income-tax act section 80C.
4. Know About Various Tax Deductions
If you want to save tax and avoid paying more than you owe, then it is essential to identify the available tax deductions to make claims in your tax return. Not all taxpayers know this, but they can claim up to Rs 1.5 Lakh under Section 80C. Multiple tax saving instruments can help you save more tax beyond the 80C limit.
For instance, if you buy a term insurance plan, then you can claim deductions on all your premiums paid in a financial year. There are also other ways, such as interest on education loan, home loan, and investment in National Pension Scheme, that too are eligible for tax deductions.
Several life insurance companies and expert financial advisors provide a tax calculator on their website that helps you calculate your tax liability as well as deductions. They are also helpful in choosing the right investment options that are suitable to your income and financial portfolio.
5. File your taxes on time
Taxpayers must pay taxes must pay the taxes that they are liable for on time. As an earning individual, you should never leave tax planning to the end of a financial year. Neither you should wait for the last date to file ITR. The more you understand the benefits of filing taxes on time, the more efficient you will become in planning for taxes.
Apart from these simple tips, you should use the income tax calculator to stay on top of your taxes. Taking extra care will not only help you meet your financial goals but also ensure that you only pay taxes as much as you should.