Due to the lack of financial planning, many people end up paying a large amount of income tax at the end of every fiscal year. Under the Income Tax Act, there are specific deductions that can be claimed when filing your returns. With the right investments, you can save on income tax significantly.
Here Are the Top 5 Ways to Reduce Your Income Tax in 2020
1. By Buying Life Insurance:
Under section 80C, the premiums paid on life insurance policies are eligible for deduction from taxable income resulting in tax saving. However, additional tax-savings options that come under this section are PPF, NSC (National Savings Certificates), Sukanya Samriddhi, NPS (National Pension System). Basically, the maximum amount claimed as deduction from taxable income under this section is 1.5 lakh.
2. Donate Your Money
If you wish to donate some amount, search for organizations like charitable trusts and eligible relief funds to claim deductions under Section 80 (G) and 80 (GGA), as per the prescribed limit. The tax deduction will range between 50% to 100% of the donation amount depending on the qualifying limit for such organizations.
3. Buying a House
You can get a deduction from taxable house property income of Interest paid on a home loan up to 2 lakhs, under Section 24. Additionally, if you buying home for the first time you can claim an extra deduction from taxable income of 50,000 on home loan interest.
4. Unlimited Deductions on Second Home Loan Interest Payment
In case if you already bought your first home and wish to buy another house, then you can enjoy full interest paid for the EMIs of the second house. According to tax laws, you can claim complete deductions for the amount paid as interest on the loan for the second house. For the first house, you can claim up to 1.5 lakhs in interest. However, for your second house, you can get the full amount of interest without any upper limit.
5. Reveal Your Losses in a Tax Return to Save Tax
Many people don’t share their losses in mutual funds, stocks, and shares, gold ETFs, real-estate in their tax returns. This is the major mistake, as many people lose an opportunity to save tax in future years. You can set forth your losses against profits in the present year as well as in the future. Additionally, if you have only losses this year without a single profit, you can show this loss in your tax returns and carry forward against any future profits for the next 8 yrs.
Final Thoughts
These were the few unknown ways that you need to effectively reduce your taxable income. All you need to do is properly execute these methods. Saving tax is not that hard, you just need to be smart and use all the opportunities you can to save as much tax as possible.