They say, two things are certain in this world. Death and Taxes. Although they are certain, there is a difference between death and taxes. Death doesn’t get worse every time the finance minister gets on TV to give a budget speech. 🙂 There is no such thing as good tax. And people don’t pay taxes. They just take it.
Some Tax Hacks one must know
- Make sure you report your short-term and long-term losses while filing your income tax return. A short-term loss can be carried over for 8 long years to set off against any short term/long term gains of the future.
- Remember the below table.
- If you are good at making money off real estate, then you should know this. When you sell an immovable property (either house or land) at least after 3 years of buying it, you can get the entire gain to be tax exempted if you use that money to buy another property of the same or the higher value. That means, if you had bought a property for 50 lacs and sold it for 75lacs after 3 years, you can use that money to buy a new house/land worth 75lacs or more, the entire gain you make of the deal is tax exempted. If you plan to construct a new house worth 75 lacs or more, then you will have 3 years to complete the construction and all money will still be tax exempted.
- The use of capital gain bonds : Any long-term (5 yrs for this case) capital gain arising from sale of immovable property would be tax exempted if you use the gain amount to buy NHAI or REC capital gain bonds. These bonds give you 5-6% return and locked-in for 3 years. The interest is taxable though.
- You can maximize your PPF returns when you put the money into PPF between 1st – 5th of every month
- If you are into investing in stocks, using equity losses to reduce the taxability is quite efficient. What I mean here is, say, I earned 1.5lacs of short-term gain from a stock. This amount is taxable in my hands at 15%. As March approaches, I take a look at my portfolio and I see that I have a stock which is having a loss of 75,000. Since the stock has good business fundamentals, I want to stay invested in the stock. I can use this opportunity to reduce my tax outgo. I sell the stock and buy the same amount of stock on the same day or the very next day. Now this loss of 75,000 can be used to offset my gain of 1.5lacs thereby reducing the tax liability but in the meantime, my portfolio remains unchanged. I still own the same share of the company at almost the same proportion.
- Did you know that the gains arising out of share trading/day trading/margin trading are considered as your income and not short-term capital gain ? They are taxed at your income tax slab rather than equity investments.
Use of less-known Tax Sections
- Section 80D: We all know that this and often use this section. However, many of us aren’t aware that any preventive medical check-up expenses up to Rs. 5,000 can also be claimed under this section.
- Section 80DD: Up to Rs 75,000 can be claimed for spending on medical treatments of your dependents (spouse, parents, children or siblings) who have 40% disability. Then up to Rs 1.25 lakhs can be deducted in case of severe disability (80%).
- Section 80DDB: Any individual below the age of 60 years can claim up to Rs 40,000 for the treatment of certain specified critical diseases. This can also be claimed for his/her dependents. Senior Citizens (above 60 years) can claim up to Rs 80,000 and very Senior Citizens (above 80 years) can claim Rs 100,000 under this section. It is mandatory for an individual to obtain a Medical Certificate from a specialist doctor from a Hospital, to claim Tax deductions under Section 80DDB
Finally the verdict is to compare the products on post-tax returns basis because the tax is real. The investments you do should cater to a particular goal. Tax saving or optimization is a by-product of your investment strategy. But when you invest with the only purpose of saving tax, it is like buying a whole new car just because you wanted to have a new car stereo.
Invest Wisely !!