Filing Income Tax Returns or ITRs can seem to be a complex and difficult task, but if you know the main tax exemptions then it’s actually simple. People tend to think this way mainly because they lack awareness, because in reality it is quite a simple and straightforward activity.
Knowing your taxable income
Perhaps the simplest step to begin with is knowing how much of your income is taxable. In order to do that, you need to first know what part of your total income is taxable, what category of taxes does it fall into, and which tax slab is applicable for you. There are several deductions available, offering lower or reduced taxes to complete exemptions, the most common and popular deductions are:
This section talks about investments, and as many 14 different investments that could make a certain part of your income as non-taxable. These instruments include Public Provident Fund, Employee Provident Fund, National Pension System, National Savings Certificate etc. In the current financial year, a total investment of up to Rs. 1,50,000 under the said instruments would result in tax benefits.
Healthcare is one of the primary expenses of any person, especially for the elderly citizens. This is why the tax deduction benefit has increased to Rs. 50,000 for senior citizens (age 60 or more) in the current financial year. In case you are paying the premium on behalf of your parents, you can apply for deductions of up to Rs. 20,000. Furthermore, in case of citizens aged 80 years or more who are not insured, a deduction of up to Rs. 30,000 on medical expenses is allowed.
Under Section 80T
The section 80TTA is all about savings, one of the primary investments of working class. Under this section, interest earned on savings account (up to Rs. 10,000) is deductible from the taxable income. The account could be with a bank, a co-operative society or even post office.
Under Section 80G
If you are one of those people who take joy in philanthropy, then section 80G gives you something to smile about. The section allows you a deduction of 50% of the amount you donated to charities and relief funds (up to Rs. 10,000) paid via cheque, draft, or cash. However, it must be kept in mind that a single donation made in excess of Rs. 2000 in cash is not eligible for deduction under the section.
Under Section 80E
Education is another sector where a common man makes most of his expenditure, and education loans are a nightmarish thing to tackle. Fortunately, the interest on the education loan is deductible under section 80E. The deductions are applicable only for loans for higher education. You are eligible for the deduction if you had taken the loan for yourself, your spouse, your children or any other person of whom you are a legal guardian.
Plan your investments and expenses
Investments are one of the best uses of capital, but they are also a risky business. There are certain things you need to keep in mind before opting for investments:
Clearly analyze the purpose of your investment. Broadly, there could be three: safety, growth or income. Knowing the exact purpose will help you plan your investments in a better way.
Decide the amount you can use for investment purposes. There are broadly two types: the lump-sum for one-time investments, or the monthly contributions for regular investments.
Organize income slips and relevant documents
One of the fundamental things you must do while preparing to file returns is keeping all your income slips and other relevant documents organized.
If you are planning to opt for tax deductions, you must have relevant bills and receipts in place. Any claim without the appropriate slip to support it is not entertained, so it is essential to keep a file of all the expenditures you might later want to opt for deductions.
Keep a track of your tax liabilities
Tax liability is the tax you have to pay to the government on the basis of your income and assets. It is important to keep track of everything that is taxable before you start preparing to file returns. If you are not sure which items are taxable, go for professional help.
File ITR well before last date
There is more than one reason why filing your income tax returns well before the deadline would be a good idea. Postponing the task to the last date often results in a disorganized and haphazard filing of taxes. It is highly recommended that one plans to file for an ITR early, so that you have enough time to collect all necessary information and do everything in an organized fashion. Furthermore, filing an ITR before time would also help in quicker processing of your tax refunds. You could also seek external professional help for filing your taxes.
Income tax returns are not as dreadful as most people think, but rather a good opportunity for you to maximize your profits while being a dutiful citizen of the country. The knowledge of some basic aspects will make filing your ITR a simple and hassle free experience.