Sunday, 22 November 2015

4 Lesser Known Ways to Save Tax

4 Lesser Known Ways to Save Tax

Gain from Permitted Tax Strategies not Evasive Loopholes

Every year, when the time comes to file taxes, it’s an itchy interlude, when most of us are filled with anxiety about the deductions that are going to burn a hole in our pockets.

Here are five subtly obvious ways you can save tax.

#1: Gain from capital losses by balancing it off

Did you know you could balance short term losses against long term capital gains? Short term capital losses such as that incurred from investing in stocks can be set against long term capital gains like that gained from debt funds or sale property.

For instance, you've paid off the home loan and sold the property for a profit of Rs. 40 lakh. At 25%, the amount of tax payable is Rs 10 lakh. In the same year, however, if you have sold stocks at a short term loss of Rs. 4 lakh, then your taxable amount will be Rs. 36 lakh.

Proof Required - Ensure you keep the statement of your trading account, including the details of transactions for which you have incurred losses.

#2: Learn More to Save on Educational Expenses

Increasing cost of education is a major concern for parents. In the case of education, the taxman is relatively favorable.

Under Section 80C and 80E, interest on educational loans for children as well as spouses (excluding relatives and siblings) is deductible from taxable income for the first eight years.

Proof Required – For claims on interest paid on education loans, you need to present your loan account statement as proof.

#3: Lighten the weight of medical expenses on illness of dependants

The taxman understands that in circumstances where a dependent is chronically ill, medical expenses can weigh down taxpayers. Therefore, under Section 80DDB, an annual deduction of INR 40,000 or INR 60,000 for senior citizen dependents can be claimed.

Deductions can be claimed on only certain diseases, some of which include, advanced stage of AIDS, hematological disorders such as hemophilia, neurological diseases such as Parkinson’s, dementia, chorea, and chronic kidney failure.

To be eligible for a claim, dependents (parents, children, spouses and siblings) should not have claimed for deduction separately.

Proof Required – For claims on medical expenses on illness of dependants, you need a medical certificate and details of the illness from a certified medical professional in a government hospital.

#4: Politicians are not the only ones to gain – Benefit from deduction on political contributions and charitable donations

Being socially responsible and politically inclined seems to be the current trend. Whether you contribute to a recognized political party, volunteer to donate money to a NGO or charitable organization, you are eligible for a tax deduction.

Under Section 80GGC (80GGB for corporates), donations to registered political parties (excluding contributions to individual) or electoral trusts can be entitled for a deduction. A fascinating point to note is that there is no upper limit on the amount that can be claimed as a deduction.

Under Section 80G, 100% or 50% of your donation to a charitable organization and up to 10% of your income is entitled for deduction.

Proof Required – For claims on contributions to political parties, you need a stamped receipt from the party or trust. For claims on donations made to charitable organizations, a tax exemption certificate or receipt is required.

Remember: It’s not about avoiding taxes. It’s all about reducing your tax liability

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