Income tax liabilities burn a part of your saving every year. A heavy part of your earnings is deducted from your account in the name of taxes. Many people try to evade their tax by hiding their income sources, just to save that money. But, there are many ways in which you can plan your income tax liability without hiding your income. But before going in that first, let us understand what income tax liability is, how income tax can be calculated and how it can be reduced.
Income Tax Liability:-
Tax liability is the sum of money to be paid by any individual in form of tax to the Income Tax Department. That is the amount you are responsible for paying on account of your direct income, any gain of assets, any gain from house property or any other taxable event.
How to Calculate Income Tax?
Many times, the common problem people face is how to calculate income tax? Well, many factors are taken into consideration for calculating income tax liability. Some of these factors are:
a) Type of income.
b) Amount of income.
c) Age of the Taxpayer.
d) Savings and Investments made.
e) Slab rate
It is common that most of the times the tax is deducted from your entire income because of lack of planning. However, you can take exemptions of tax from your income by certain types of investments like National Saving Certificate (NSC), Pension schemes, Sukanya Samridhi etc. which means if you invest a certain sum of money on investments which are exempted from the income tax, you can reduce your tax liability. Moreover, your liability of paying taxes highly depend upon the slab rates you come into that are decided in the Indian Tax System by the Finance Act.
Tax Liability :
In a financial year, if your total income exceeds the minimum exemption limit for that year, you are liable to pay income tax. So, salaried individuals, HUF (Hindu Undivided Family), NRIs, Businessman and pensioners, all pay income tax. Each category of individuals has its separate tax slab which is decided on the total income and the age of the taxpayer? There are three categories of individual taxpayers in India, which are as follows:
Slab 1: For Individuals Ageing Less Than 60 Years
Slab 2: For Individuals Ageing Between 60 To 80 Years
Slab 3: For Individuals Ageing Above 80 Years
Simple Steps to Reduce Your Tax Liability:-
1. Save Tax on House Rent Payment made by the taxpayer –
Payment made for house rent is eligible for tax deductions. You can less the amount paid for house rent from your gross income. However, there are certain conditions under this deduction; for calculation of deduction of HRA you can use an HRA calculator online or consult with any tax professional.
2. Claim 80C deduction of Rs. 150,000 by Investing in Tax Saving Instruments like EPF, NSC, LIC –
There are many investments which are eligible for tax deductions up to Rs. 150,000 under Section 80C of the Income Tax Act 1961. The amount invested in these investments is deducted from your taxable income to the extent of Rs. 150,000. These investments are National Savings Certificate (NSC), Life Insurance Corporation (LIC), Sukanya Samriddhi Yojana, Principal repayment on account of home loan, post office saving schemes, Pension Plans and Child Plans provided by insurance companies not only offer you tax benefits but many other benefits as well.
3. Find the other Expenses Eligible for Tax Deductions –
There are some general expenses which are helpful in providing deductions from taxes. Some of these expenses are also counted under the limit of Section 80C. For example, the tuition fee of your child and any other extra-curricular education fee for your children can be used to claim tax deductions, Travelling allowance, Medical allowance etc.
4. Save Tax on Health Insurance of yourself, your family and your parents –
Some unexpected medical emergencies like an illness, an accident, or a serious health issue may drain off a huge part of your savings. Having health insurance with you can help you tackle such expenses without putting a mark on your savings. Health insurance of yourself, your family & parents allows you to claim tax deductions under Section 80D as follows:
5. Claim interest paid on house property loan up to Rs. 200,000
If you have taken a home loan, you are eligible to claim interest on a home loan up to Rs. 200,000 that is termed as loss from house property. You can fulfil your dream of getting your own house also and get income tax exemption as well.
Source: Income tax, ICAI 2019