- Tax savings for salaried
- Tax saving strategies
- Tax regimes
People want to save the heavy taxes on their income. However, they need clarification on how to save income taxes on their earned income. This article will provide 8 tax-saving strategies for high-income earners including tax saving through donation, offsetting your losses with gains, investment in retirement planning, tax-saving investment options, starting a side business, claiming tax benefits for your life and health insurance premiums, funding higher education with a loan, choosing tax regime wisely. You must read this article to save heavy tax on your annual income in 2024 in India.
How to reduce taxable income for high earners?
If you are someone who is earning a decent amount in India but paying huge taxes then you must follow the below-mentioned strategies to save huge taxes.
1. Tax-saving through charity/ donations
The amount you paid towards charity/ donations is exempted from income tax. If you donate some part of your income towards a noble cause then you can claim tax benefits under Section G and Section 80 GGA. However, only certain donations are eligible under the deductions. You cannot avail deductions under donation if taxpayer opts to pay their taxes under the new regime. The donations must be made through various sources including cheques and demand drafts. The eligible deductions vary from 50% to 100%.
- Name of the person who has made the donation
- PAN card
- Address proof
- Amount of donation
- Eligible tax benefits under the donation made
2. Offset your losses with gains
Harvesting your losses from any of your investments with your gains helps you save a lot of income tax. Let’s understand how offsetting your losses with your gains helps you save your income tax.
For example, you have invested Rs 15 lakhs in some stocks and Rs 30 lakhs in mutual funds. There was a gain of Rs 5 lakhs from the amount invested in the stocks and a loss of Rs 2 lakhs on the amount invested in mutual funds. You have to pay the income taxes on the net total of Rs (5-2)= Rs 3 lakhs rather than the whole gain of Rs 5 lakhs. This is how offsetting works for you.
3. Invest in retirement planning to save taxes
It’s ideal to save and invest some money to plan your retirement. Retirement is the stage when you no longer earn but your expenses remain the same or increase. So, it is ideally good to invest money in retirement schemes. You can invest an amount of Rs 500 to Rs 1.5 lakhs in a PPF account in a particular financial year. If you invest an amount greater than Rs 1.5 lakhs in PPF then this amount is not eligible for interest and tax-savings. The interest and maturity amount under PPF is tax-free under Section 80 C of The Income Tax Act, 1961.
4. Tax-saving investment options
Various tax-saving investment options help you save income tax. Here are some of the available investment options:
1. Tax-saving mutual funds
You can invest your surplus amount in tax-saving mutual funds. These mutual funds offer you market-related returns along with the maturity amount. Investment under these mutual funds is eligible for tax deductions under Section 80 C. up to a certain limit. Some of the tax-saver mutual funds include- Kotak ELSS Tax Saver Fund, Quant ELSS Tax Saver Fund, Union ELSS Tax Saver Fund, ICICI Pru ELSS Tax Saver Fund, Franklin India ELSS Tax Saver Fund, and various others. You can invest in these mutual funds with the help of your broker, registered bank account, and necessary documents.
2. Tax saving FD (Fixed deposit)
You can invest your money in FDs to save taxes on the amount of up to Rs 1.5 lakh. This amount has a lock-in period of 5 years and the interest earned on the amount is completely taxable. FDs offer you an interest ranging from 5-8% annually.
3. ULIPs (Unit Linked Investment Plan)
You can invest your amount in ULIPs to save taxes under Section 80 C and Section 10 (10D) of The Income Tax Act, of 1961. The returns of ULIPs depend on the market conditions. ULIPs offer you dual benefits of insurance as well as market-related returns. You can switch your amount between various funds under ULIPs.
4. NPS (National Pension Schemes)
You can invest your money under NPS to save tax on your income. Any individual from the age of 18-60 residing in India can invest in NPS. Under this scheme the miscellaneous charges are minimal. The fund managers invest your funds in various securities including equity, corporate bonds, and government securities. It’s the option of the investors to manage their funds actively or passively.
5. National Saving Certificates
You can invest your amount in National Saving Certificates to save taxes. Any individual residing in India can invest in these certificates. If you are a minor then an adult can buy these certificates on your behalf as a joint account. These certificates are issued by either banks or post offices.
5. Start a side business
We will tell you how to reduce taxable income with a side business. If you are salaried and want to save taxes, then you can start a side business. You can show the expenses incurred in your business including investment in assets, and salaries provided to staff. Etc. These expenses are deductions to save the taxes.
6. Claim tax benefits on life and health insurance premiums paid
You can claim tax benefits on the premiums paid for life and health insurance under Section 80 C and Section 10 (10D) of The Income Tax Act, 1961. You can claim these benefits by submitting your premium payment receipts.
7. Fund higher education with a loan
To save taxes and fund higher education you can avail of a loan. Loan against education is usually tax free and you get various tax benefits.
8. Choose your tax regime wisely
There are two tax regimes: the old tax regime and the new tax regime. While filing your income tax returns, you must choose your tax regime wisely. Your CA will help you choose the tax regime wisely otherwise you can compare your tax under both regimes by visiting the official tax calculator made by the Income Tax Department.
Conclusion
In the above article, we have provided 8 tax-saving options for salaried and self-employed. It will help you save a lot of tax amount. If you want more such tips and regular finance hacks to save your taxes then you can keep reading our blogs.
FAQs: Top 8 Ways to Save Your Income Tax
To save income tax in 2024 you can claim various deductions such as premium paid for insurance, any loan, any business expenses, investment in tax-free funds, retirement schemes investments, etc.
Income tax benefits are special deductions which are offered to you under various Sections to reduce your total taxable income.
You can save huge taxes by investing in tax free mutual funds, retirement schemes, ULIPs, National Saving Certificates, etc.
You can claim deductions on interest applicable on FD under Section 80 C up to Rs 1.5 lakhs.
