How to save Income Tax? 10 Important Tips.

Check your expenses and adhere to your budget

People tend to forget that good times don’t last forever. If you spend lavishly during good times and continue the trend without adapting to changes in circumstances, very soon you will land in financial trouble. Hence to ensure you lead a consistent lifestyle, always draw out a budget and ensure you stick to it religiously. E.g. if you have allocated Rs 500 per month towards your entertainment expenses, don’t spend a rupee more than Rs. 500. It will not only help you handle your finances better but will develop your willpower by delaying instant gratification.

Don’t rely on future income

Depending on future income in order to spend today, is one of the biggest mistakes we make. This has been evident during a job crisis, where youth racked up a huge credit card debt and took heavy loans. But when the salary cuts and job losses occurred, they were unable to pay off their debt. E.g. if your monthly income is Rs. 20,000 always ensure you spend well within Rs. 20,000 as pay cut or job loss may land you in trouble.

Reduce your debt

Got a bonus? Then pay off any loans that you have taken. If you have multiple loans, first pay off the loans with the highest interest rate, then the one with second highest rate and so on. E.g. if you have a credit card debt, personal loan and home loan, first clear off the credit card debt, then personal loan and finally home loan. For this you will have to plan out your debts and then go on following it systematically and steadily. It will not only save you money but will also give you mental peace.

Opt for strategic asset allocation

Though experts have consistently stated the importance of asset allocation, many investors tend to overlook this fact and invest only in the hottest asset. But remember market conditions do change and what is hot today may be out in the cold later on for a long time. So ensure you divide your portfolio amongst stocks, bonds, gold and real estate to get the maximum returns from your portfolio. Though your portfolio may under perform for some time, it will end up protecting you when the things get rough.

Keep emergency cash

You never know when a crisis can strike your family. Death, disease or job loss can end up upsetting your investments. You might be forced to sell your investments though they have not been given you any profits. Hence it is advisable to keep at least 3-6 months of your household expenses aside as emergency cash.

Sort out Your Finances

Agreed, keeping tabs on and handling your finances closely, may not sound like an interesting job, but it is a necessity. However you can reduce the boredom by putting a system in place. Once it is done, you can spend a few hours a month on this job. E.g. on Sunday, you can spend 1-2 hours to find out how your investments are performing, reading up any news concerning them or talking with your financial planner about the performance of your investments.

Plan in advance

One of the reasons many people land in financial mess is that they don’t plan their finances ahead. So it is imperative to plan your finances properly. Find out your current position, where you intend to go and set up a feasible plan to achieve your objectives. Unforeseeable events may occur and make you stray away from your plan for a short time, but ensure you get back on track at the earliest. Always remain focused and keep a watch on your progress. E.g. you are saving to buy a home and have started investing for the same. But 6 months after you started investing, you lose your job. If that happens, stop your investment, get a new job and again restart your investment.

Invest systematically and gradually

The biggest problem is that most people don’t bother saving till it is quite late. So they don’t have any money to fall back on in case of emergency. Hence it is essential to start small, but regularly and then increase the amounts later on. E.g. you can start a SIP, in which a particular sum is debited from your bank account and invested in a mutual fund. Or you can open a recurring deposit, which acts like a SIP, initiated by the bank. All this will occur automatically, so you have no excuse not to save.

Be in charge of your investments

The markets have crashed, the realty is down in dumps. What do you do? Sell off? Wrong. Unfortunately, this is what most investors do. In this situation, it is advisable to hold on to your portfolio as selling will just end up causing you financial loss. Instead increase your emergency cash reserves and periodically review your asset allocation of your portfolio.

Set a realistic outlook

The days of stocks giving a return of over 40% are over. While it is possible some of them may give you those types of returns, it is setting yourself up for disappointment if you keep your outlook very high. Instead keep a practical outlook of earning 12-15% returns from your investments.

Best Income Tax Saving and Investment Tips for Salaried Employee for the Assessment Year 2013-14.

All salaried employee are planing to save Income Tax with small savings/Investments/Deposits. Now the financial year 2012-13 is going to end and at this time salaried employee think about Saving of Income Tax. In this regard best and profitable saving planning tips and tricks are describe below as well as some suggestions you have adopt for saving of Tax for Assessment Year 2013-14.  By this method all salaried employee save money and income tax and free from  unwanted expenses.

How Salaried Employees are Plan to Save Income Tax?

1) Proper Allocation of Annual compensation : Restructuring your salary with some additional components can reduce your tax liability. This restructuring doesn’t require any additional cash outflow. The following components can be efficiently used to reduce your income tax liability.

• Transport allowance to the extend of Rs.800 is exempt.
• Medical expenses which are reimbursed by the employer are exempt to the tune of Rs.15000/-.
• Food coupons like sodexo or ticket restaurant are exempt from tax up to 50 Per meal .No of meal in day can be up to 1-2 per Day.
• Individuals who are all living in a rented accommodation can include House Rent Allowance ( HRA ) as a part of their salary.
• Leave Travel Allowance (LTA) can be part of your salary as this can be claimed twice in a block of 4 years.(read taxable and exempted allowance)(valuation of perquisites)

2) Effective Utilization of Tax Exemption : As far as possible utilize the maximum exemptions available under section 80 C, 80 CCF and 80 D. The maximum exemption available under section 80 C is Rs. 100000.

Under this section Rs.100000 investment or contribution can be made in PPF, NSC, Life insurance premium, 5 year FD with banks and Post offices, Mutual Fund ELSS, Principal Repayment of housing loan, and the tuition fees paid for children’s education.

Under Section 80 CCF, you can invest up to Rs.20000 in infrastructure bonds.

Under Sec 80 D, the premium paid towards the mediclaim policies are exempt. The maximum limit of exemption is Rs.15000 and for senior citizens the limit is Rs.20000 and for covering senior citizen parents there is an additional exemption to the extend of Rs.15000.

3) Properly Structure your Housing Loan : The Principal repayment of a housing loan is eligible for a deduction up to Rs.100000. The interest paid on a housing loan is eligible for a deduction up to Rs.150000. If the housing loan is for a sizable amount, then it is possible that the principal repayment and interest may exceed the specified tax exemption limit. To utilize the maximum tax benefit, an individual can consider going for a joint home loan with his/her spouse or parent or sibling. This will make sure that both the co-owners can claim tax deductions in the proportion of their holding in the loan.

4) Tax Plan in Sync with Overall Financial Plan : You should not do your tax plan in isolation. You need to do it in sync with your overall financial plan. So a tax plan is not only to just save taxes and also it should assist you in achieving your other financial goals like children’s higher education, buying a home or retirement.

5) Avoid Last Minute Rush : In fact the right time to do the tax plan is the beginning of the financial year. If you postpone your tax planning even now and do it in the last minute, then you will not be able to choose the right investment. In the last minute rush, you will be forced to choose a scheme which gives the proof immediately. Is the investment sound and profitable? Is there any other better options? You will not be able to choose the best scheme and you may settle with a mediocre one.

6) Invest Some Quality Time : Before investing your money, you need to invest your time. You need to take some quality time to understand the various tax saving options and compare their benefits and limitations.

7) Check for Future Commitments : Some tax saving options like NSC or ELSS need only onetime investment. Some other tax saving options like PPF, Ulips need periodical investments year after year. You need to be careful in choosing a tax saving scheme where you need to commit for periodical future payments. You need to check on a few things like; do you need such a future commitment? Will you be able to meet the future commitments at ease? The law may change and you may not get any tax exemption for your future payments. Would you consider the scheme irrespective of tax benefit for the future payments?

8) Changed Your Job; Redo your Tax Plan : Did you switch your job in the middle of the financial year? Then you need to redo your tax plan with consolidating the income from both the companies. It is advisable to inform the new company about the income during the particular financial year from the old company. So that your new company will deduct the right amount of TDS. Otherwise you may need to pay extra tax at the end of the financial year.

Whenever you change your job, you need to have a sitting with your financial planner or tax advisor. So that the required changes in your tax plan can be done proactively.

With proper tax planning you can reduce your tax liability; save more; invest better and become wealthier.

Income Tax implications for a Freelancer in India

With more and more growth of internet in India, the number of freelancers or independent contractors is on a steep rise. People prefer to work for themselves on their own terms than an employer and are capable of earning far more than what they would in their day to day job. So the question comes “Do I need to pay taxes for my earnings as a freelancer”? The answer is YES and you need to pay taxes and file your income tax returns even if you are an individual consultant or a freelancer.
Within Indian Law any individual running a business where he/she is the sole owner is termed as a Sole Proprietor, the same applies with a Freelancer. A person earning on his own is considered a Sole Proprietor and needs to file income tax returns using the ITR-4 return form . If you have any other income source (maybe your full time job) you need to include that as well while filing your income tax return.

For the financial year 2012-13 (Assessment year 2013-14)  , the income tax slabs have been defined by the government of India as follows. The numbers are revised every year at the time when the finance minister announces the budget so do keep an eye for next year.

The tax slabs are self explanatory, if you are a general tax payer or female tax payer for the first 2 lakh of your income for the year you don’t need to pay any tax after which 10% slab is applicable till 5 lakhs and beyond that 20% and 30%.
Do I really need to pay taxes? 
Yes, absolutely. Not paying tax is a crime as per government rule and you might have to face severe penalty if the IT department raises a scrutiny against your Income Tax Filing. So file your Income Tax on time. Moreover nowadays with all payments being tracked against the PAN number issued, there is no escaping.
What is TDS and is it applicable in case of Freelance Work?
TDS is Tax Deducted at Source, Government of India has made regulations by which a company paying an individual or another company for services offered needs to deduct tax at source. But in case someone deducts tax at source they have to provide a Form 16 to the person whose tax has been deducted. You can then use this TDS amount while filing your Income Tax Return and seek refund in case your earning for the year doesn’t exceed 2 lakhs.
Find more information shared by a lawyer for the benefits of the Freelancers.
https://www.box.com/shared/sp19y7hkga
Have you filed your income tax returns?
Share your problems while filing IT returns and also if some tax implication has been missed here.

Note: This is not a legal advise and should only be considered as information provided from personal experience, for more information please consult a practising Lawyer or a Chartered Accountant.