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Plan your taxes before its too late!

Updated on: 07 Aug, 2023 04:45 PM

“Nothing in this world is said to be certain except death and taxes,” said the great Benjamin Franklin. For a common man, Income tax is perhaps one of the most difficult things to understand. They fear tax and thus fall prey to high tax liabilities and to avoid that, a good tax planning becomes a necessity for saving the taxes. Once the effective tax planning is brought on board, it not only help in saving money but will also enhance your quality of living.

In addition to bearing heavy taxes, innocent taxpayers are also ravaged by their tax experts who charge them high fees and don’t assist them in lowering their tax bills so it becomes one of the major hindrances due to which people don't plan taxes.

Well, Tax planning is not a rocket science; you just need to be a little smart and need to have a basic knowledge of taxation system. By planning every transaction with taxes in mind is the first step to effective tax planning.

In the day to day life, an individual does so many transactions ranging from payment of the LIC premium of family members to making donations at several institutions but due to the absence of any planning, he fails to claim any deduction at the time of filing income tax return.

For example- when you are paying LIC premium of self or family member, don't throw away the slips as these will help you to claim deduction under section 80C of Income tax.

But how should I start tax planning?

  • The first step is to get aware about the basic taxation system of our country, this will make you more vigilant in understanding your income bifurcation and every penny that you'll spend will have a tax angle to it.
  • Understand various deductions that are available. Most of the people just concentrate only on section 80C deductions like Fixed Deposit and LIC and ignore the other deductions that they can avail.
  • Keep up to date with all the latest developments in taxation done by the government during the year and primarily on the "Budget".

Some Smart tips for tax planning:

  • Utilize the limit of Section 80C deduction fully i.e. Rs. 1,50,000. A person having an annual income of Rs. 5,00,000 will have to pay tax on Rs. 2,50,000 if he doesn't utilize the 80C deductions and if he makes full use of it then he'll only have to pay tax on remaining Rs. 1,00,000. The most common deduction options under this section are:
    1. Public Provident Fund (PPF)
    2. Life Insurance Premium
    3. National Saving Certificate (NSC)
    4. Tuition fees paid for children's education
    5. Principal payment of house loan
    6. 5-year fixed deposits with bank and post offices.
  • Claim deduction under section 24 if you pay interest on your housing loan.
  • Invest in a medical insurance policy to get the deduction of the same under section 80D.
  • Collect all the receipts of the donation that you make which will come handy in claiming the deduction of the same under section 80G.
  • Interest on education loan of your child is one of the most common deductions that you can avail if you pay any interest on the same.

These are just a few examples and awareness of these could help you in saving your taxes to a great extent.

However, capital gain transactions should be handled with little more care and proper consultancy from professional tax advisors may be needed.

So, plan your taxes right from today because your today’s decision will have a great impact on your future’s wealth. So, Stop being tax feary, become tax savvy!

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.