The tax system is an integral part of any economy. When taxpayers pay their due taxes on time, the economy grows and prospers in the right direction. As a taxpayer, you may be paying the appropriate taxes to comply with the legal mandates and to contribute to nation-building. To ease things for taxpayers, the government has also ensured several ways in which individuals can reduce their tax liability. Using an income tax calculator can help you get a basic idea of the different deductions which you can take advantage of. Besides this, there are many other ways one can save tax in the year 2022. Here’s how.
- Opt for life insurance
Whichever type of life insurance policy you opt for, whether it is a whole life plan, a term plan, or a ULIP, the premium you pay for the plan is eligible for tax deductions up to Rs 1.5 lakhs as per Section 80C of the Income Tax Act. What’s more, Section 10 (10D) of the ITA also provides tax benefits on life insurance pay-outs. The death benefit pay-out, the surrender value pay-out, and the maturity benefits are all tax-exempted.
- Insure your health
Section 80D allows tax deductions against the premiums paid for health insurance policies. For those under 60 years of age, the maximum deduction is limited to Rs 25,000 while senior citizens (that is, individuals over 60 years of age) can claim up to Rs 50,000. If you have opted for a health policy, then remember to claim this deduction the next time you are following the steps to file income tax returns.
- Opt for ELSS when considering mutual funds
If you are thinking of investing your hard-earned money in a mutual funds scheme, then do so via an ELSS. The Equity-Linked Savings Scheme offers ultimate tax-savings; you can claim a maximum deduction of up to Rs 1.5 lakhs under Section 80C.
- File for exemption on COVID relief
If you have received any sort of income or relief amount from an employer or any other source for the treatment of COVID or an illness related to COVID, the amount is tax exempted. The exemption is also applicable for money received by a family on the death of a person due to COVID or related illness as long as the money is obtained under 12 months of the passing away of the person. For money received from any other source than the employer, the cap amount is set to Rs 10 lakhs.
- Increase your NPS contribution
Looking for ways to save tax over and above the Rs 1.5 lakhs limit of Section 80C when following the steps to file income tax returns? Increasing your National Pension System contribution can help you. As per Section 80CC (1B), an NPS member can claim an additional deduction of up to Rs 50,000 in a year above the Rs 1.5 lakhs limit.
- File for exemption on telephone and internet bills reimbursement
With the rise of the work-from-home culture, many organisations have also started reimbursing telephone and internet bills for their employees. As a taxpayer, you should know that this reimbursement is not considered as an income and is not taxable as per Rule 3(7) (ix) of Income Tax Rules. Ensure to save the original receipts of the telephone and internet bills to partake of this rule.
Miscellaneous tips for an easier ITR filing process
- Note that there are seven types of ITR forms available. Forms I, II, and III are ideally suitable for the average taxpayer. Depending on your income sources, income categories, etc., ensure to choose the right ITR. Submitting the wrong form could lead to the repetition of the entire process.
- Create a tax-saving strategy that outlines the various instruments that can help you reduce your tax outgo greatly. Check which of these instruments are in alignment with your financial needs and then consider investing in them. Having a plan beforehand lessens the pressure at the last minute.
- Use an income tax calculator to get an estimate of how much tax you are liable to pay. Though it provides only an estimate, the calculator will help you understand the various ways in which you can save on tax and how exactly each deduction is reducing your taxes.
These tips are subject to various terms and conditions. Amendments in tax laws may lead to changes in tax benefits as well. Consult a tax expert before making any major financial decisions.