Introduction:
Most of us are in the new tax regime and we really don't have many options to save further taxes right? But I am going to share a lot of strategies today which you can use to save taxes, even in new tax regime. Now I am going to talk about a lot of strategies today which are lesser known and also people even though they know they don't really understand the point of that concept. So, we'll also try to break down the concept so firstly most of us are in the new tax regime some of them are still in the old tax regime because they are paying rents and their HR deductions are very high. Only in those cases I have seen that people are falling in the old tax regime. But otherwise, most are falling in the new tax regime which is a good thing. But now how to reduce further taxes, right?.
Smart Tax-Saving Strategies:
First is employees provident fund contributions. So, there are two types of
contribution. One is 1,800 rupees per month or the other is 12% of basic
salary. What you have to do is you have to contribute 12% of basic salary. There
are two components of this. First component is the employee contribution. Second component is employer contribution. So 12 + 12 24% will get
contributed but the 12% of employer contribution will not be considered as a
part of your income and it will not be taxed right so that is one way of doing
it.
Second is national pension scheme. So, if you can convince your
employer to start contributing to NPS you can contribute up to 14% of your
basic salary to NPS. So, this also will help you save taxes because again employer contribution
will not be considered as a part of your income and it will not be used to calculate your income taxes. So, employer
contribution for PF and employer contribution for NPS a total of 7.5 lakh
rupees contribution can be made per year through employer up to which it is not
taxable beyond that it becomes taxable. So, remember this also when if you are in somebody who has a very high
salary say you have a salary of 1 Cr. rupees and a basic salary of 50 lakhs then
12% of EPF itself will become 6 lakh rupees right then you can probably say
that I'll only contribute 1,800 to EPF and 14% which is 7 lakh rupees to NPS
is a fantastic instrument.
The next strategy of saving taxes is through gifting
folks Understand this a lot of people what they do is if they are earning money
themselves they transfer money in their spouse's name and you know create a FD
but in those cases it is completely taxable because clubbing of taxation rules
will apply so you have to make sure that you're not transferring the money to your spouse where does gifting help gifting
helps if you're transferring the money to your parents right in that case everything
all the income generated from the money that you transfer to your parents is
not taxable so that is one way of doing it you can transfer it to your mother
or father if they don't have any income you can invest through them and you can
transfer it to your child but the child should be an adult child not a
dependent child so in those cases if the child is
a dependent
child even then you don't get any tax exemption because clubbing rules will
apply so remember this whenever you transfer I have seen multiple people you
know making this mistake of transferring money to their spouses and investing
and they don't understand the fact that clubbing rules will apply next is if
you are somebody who is not yet married right and who is going to get married
then any gift received during a wedding is also tax free. You have to maintain
a record of how much gift you have received.
If you're
depositing a lot of cash in your bank account, but if you can show the evidence
to the tax department that it was because you got married with photos and
videos and also keep a list of people who have given you these gifts, all of
that can be taxpay right. So that is another great way of saving some taxes
especially when you receive a lot of gifts in cash during your wedding, right? So,
you can deposit it in your bank account and you know just disclose it in your
tax return and it will be tax free for you. Then the next way
of saving taxes is through tax gain harvesting. So, there is something called
tax loss harvesting and tax gain harvesting. We are going to talk about both. So,
say for example you have a lot of investments in stocks or mutual funds equity
oriented mutual funds or hybrid mutual funds. Right? What you can do is if
those funds and or if those stocks are in losses, it can be a long-term capital
loss or it can be a short-term capital loss. You
have to sell
that fund or sell that stock and you know buy it again. Don't buy it on the
same day. Buy it, if you're selling a stock on BSE, buy it on NSE. If you're buying it on
same day and if you are selling only on BSE and you cannot buy it on NSE, then buy it on the next
day. Because delivery should happen. that is one way of doing it. But if you're
selling mutual funds, right? Be aware of the fact that exit loads are
applicable in a lot of equity and hybrid funds. So do it in case of long-term capital losses only. Don't do it in case of short-term
capital losses because you will incur expense like exit loads. This is one way
of doing it for losses. Because all these losses can be carried forward for the
next 8 years and you can set it up against your long-term capital gain or
short-term capital gain. long-term capital losses can be set up against only
long-term capital gains and short-term capital losses can be set up against
both short-term capital gains and short-term capital losses.
Then what about tax gain or wasting? So, the tax loss is that long-term capital
gains in equity, up to 1.25 lakh rupees is tax free every year. So, what you
have to do is if you're buying stocks or if you're investing in mutual funds
right I personally prefer mutual funds only but if you're trying you know
investing in stocks or mutual funds then you should you know every year do
tax gain harvesting any funds or stocks which are in you know in the long-term
capital gain bracket which is more than 12 months of holding then you can sell
that and buy it again and book profits of up to 1.25 lakh rupees. What this
will do is you will book your profit and then reinvest. So, your cost basis
will go up. Say for example you invested 10 lakh rupees this year and next year
the value of the 10 lakhs went up to 11.25 lakh rupees. You can send the entire 11.25 lakh rupees and buy it again. You will not pay any tax
on the 1.25 lakh rupees profit and next year your cost is going to be 11.25
lakh rupees not 10 lakh rupees. That's how you can keep on increasing your cost
misses every year until the time you retire and then use a lot of tax saving
strategies even in retirement as well. And that's what we help our clients at
the firm as well. to have any income apart from say your salary income right
you might be having YouTube channel or you might be giving tuitions or you know doing any sort
of consulting then you can consider all of that as a business also right and
take deductions for those expenses say for example any revenues that I generate
through YouTube I also have an editor for to I am paying right I am also paying
for a lot of subscriptions all of those can be deducted against my income and
my tax liability can be reduced right so you can strategize beautifully here
you have a business income if you have a consulting income then you can use sections like 4480 and 44 ADA and you know pay tax on 50% of your
income right so that is another way of doing it consult with your CA obviously
or you know if you're our client consult with us but we we'll tell you which
sections to use and you know we'll do it for you if you're our client actually
but you have to you know make sure that you're selecting the right section if
you're using the sections like 44 AD and 44 ADA But otherwise if you can you
know just want to show a business income like I do in my personal income tax returns right or the expenses that I incur on
my consulting and the earnings that I
have from the consulting all of it is shown as a
business and you know all the deductions are taken against that.
Another way of saving taxes is I have seen a lot of people keep a lot of money in their bank accounts and fixed deposits right folks understand this fact that FDS and income in in your bank account through interest income all of it is taxable. So, what you have to do is move the money to mutual funds. When you move the money to mutual funds, you will not pay any tax till you sell that mutual fund, right? And if you can move it to funds like a category like an arbitrage fund, if you're not going to use it for a few months, if you're not going to use the money for a year or two, move it to something like an equity savings fund which has a lower net equity. You will pay lesser taxes because of equity taxation will apply in these cases. And if you move it to a debt fund, then your normal slab rate taxation will apply. So, you have to be very strategic here. All these things again we at power clients do it.
Conclusion:
Hope you liked this blog post and this will certainly help to determine best suitable option for you. Are you filings your tax returns in timely manner? If yes, comment down your tax regime and your thoughts on Income Tax rules in India. Also let me know if you want blog on any specific topic. I’ll try to bring blog post on the same soon. You feedback through Comments or Contact us section matters to us for giving you diverse, useful and informative blogs.
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