Understanding the Tax Benefits
Let’s say you earn ₹70,000 a month, and you’d like to avoid income tax here are some tricks that you could apply. Take Sarthak, for example. He resides in Delhi and loves to tour the city, also, he is earning ₹70,000 monthly.
However, he realised that ₹ 64,113 was being credited to his account every month. This confusion persisted for some time until he shared it with his father who in return explained that great strategies of tax were involved.
Investments and Tax Savings
Sarthak’s father said that if Sarthak had invested right and informed his company about it, he could have been receiving an extra ₹2,500 to ₹3,000 every month. This is so as some of the investments are capable of being used as tax credits This is because certain investments qualify for tax deductions.
For instance, investment in Public Provident Fund (PPF) or Equity Linked Savings Scheme (ELSS) can be made under Section 80C of the Income Tax Act. Sarthak failed to deduct his taxable income by not letting his employer know of these investments.
Ways to Increase Your Savings
To address this, it was recommended that Sarthak tell his company about his investments as soon as possible. This would prevent the Tax Deducted at Source (TDS) from his salary for the rest of the months in the financial year. Plus, he would also get back the excess T gradual from the TDS already paid when preparing the Income Tax Return (ITR) in July. Sarthak also had to furnish evidence of rent paid and was even able to lower his taxable income with that.
Calculating the Benefits
Here’s how it works: Thus, Sarthak’s annual salary is ₹8,40,000. With investments and deductions his taxable income could be cut down to a great extent. He consulted his father to work out the figures, and as per investment and eligible exemptions, his taxable income was below ₹5,00,000.
That is why the law states that under section 87A of the Income Tax Act, if your total income is up to ₹5,00,000, you do not have to pay any income tax.
Sarthak will be able to save tax and also get back the excess TDS that was deducted earlier and get around ₹3000 more on his monthly take home pay this way.
