Basics of Saving Taxes

The government taxes us in order to meet the cost of running its huge administration and nation-building activities, but it also gives us the opportunity to minimise the amount we have to shell out as income tax. So why not seize this opportunity?

Below are 2 basic principles of saving taxes:

1.Use deductions fully:
The deductions available to you under various sections of the Income Tax Act cover several areas like investment in Public Provident Fund, Life Insurance, Medical Insurance Premium, interest paid on Educational Loans for you and your family members, interest paid on a Housing Loan (if the house is in your name) etc. So you can safely invest amounts permissible under these sections every year and get your total annual income reduced by that extent. Ironically, though, if your income is on the lower side, you may not be able to spare much to exploit this limit fully. On the other hand, say, if your income is in seven figures and you have a comfortable but not lavish lifestyle, you may feel that the exemption limit is not enough! Well, how much you can set apart and claim as deduction will actually depend upon your gross annual income from all sources and your lifestyle both.

2. After you exhaust the deduction limits:
What happens when you have already exhausted your deduction limits and still have a few lacs to spare? Is there no way you can save tax? The good news is, there is—not in the present but in the future, when you decide to sell your assets or earn dividends etc.! You can invest in tax-saving instruments like shares or mutual funds so that the dividend earned by you is not taxed. Also, when you sell these assets at a gain through the market by paying the Securities Transaction Tax (STT), you will have to pay only 10% capital gains tax for a short term gains and no tax at all if the gain is a long-term one!


So start early and leverage time to your advantage. You could gain a triple benefit—save tax now, invest to save tax in the future; and maximise your returns.