How to maximise your tax refund: Strategies for smart filing
April, 14th 2023
Our daily lives must include taxes, which manifest as levies on the products and services we purchase and on our income. Yet, with the right planning, we may very much lessen the burden of tax responsibilities and their effect on our finances. This article aims to research methods for maximising tax returns and long-term savings. But first, let's go over some fundamental ideas before we go into these tactics.
What is a tax return (ITR)?
An individual called an "assesses," submits an Income Tax Return (ITR) to the Income Tax Department to record their income and tax information for a fiscal year. Returns must be filed before the deadline, which is typically July 31st, to avoid fines.
Five Ways to Save More and Boost Your Tax Returns
Many regulations let you deduct certain sums from your taxable income, allowing you to increase your returns by reducing your tax burden. Five tax-saving strategies are listed below to assist you to maximise your tax refund:
Think about opening a Public Provident Funds account (Section 80C)
Under Section 80C of the Income Tax Act, contributions to a Public Provident Fund (PPF) account are tax-deductible. The minimum investment required is Rs 500, while the annual maximum deduction is Rs 1.5 lakh.
The PPF account has a 15-year lock-in duration that may be extended in five-year increments, and it offers a higher interest return on deposits. Partial withdrawals from the account are allowed after seven years. Depositors can also get a loan against their PPF account deposits starting in the third year following the account's creation. On their PPF funds, depositors can earn tax-free interest.
Nonprofit organization (Section 80G)
Section 80G deductions from gross total income are allowed for donations to various relief funds, including the Prime Minister's Relief Fund and other charitable organisations.
The type of charity organisation determines the amount of deduction that is allowed, whether it be 100% or 50%. While submitting your income tax return, you must provide documentation of your gift in order to claim the deduction (ITR).
Residential Property Buying (Section 54)
If you follow the guidelines in Section 54, you can avoid paying taxes on the gains you make when you sell a residential property you've owned for at least three years. You must purchase a new residential property within a year of selling your old one, or within two years if you are building a new one, to be eligible for this exemption.
If you're constructing a new home, it must be completed three years after the sale of the previous one. Any capital gains from the sale of the old property are tax-free since they are long-term capital gains because it was kept for three years.
Travel costs Claim (Section 10(5))
The reimbursement of travel expenses is governed by Section 10(5) of the Income Tax Act, sometimes known as the Leave Travel Allowance (LTA). LTA is a benefit provided by a firm to an employee that pays for domestic travel costs for the employee and their family while they are on vacation.
The aforementioned clause states that the entire amount received through LTA is tax-deductible.
Refund for medical treatments (Section 80DDB)
Medical expenses paid due to certain illnesses including thalassemia, renal failure, cancer, or other life-threatening ailments are eligible for a tax refund under Section 80DDB of the Income Tax Act. The compensation includes costs incurred by the patient or their dependents who have been given a diagnosis of the particular illness.
The maximum amount that can be refunded is Rs. 40,000 or the actual amount that was spent, whichever is less. Moreover, elderly or very senior citizens may deduct up to Rs. 100,000.