Enough cannot be said about the importance of planning your savings and understanding tax components that you can utilise to maximize your income. One of the best ways to take the time to research and plan well in advance is to start on this exercise right in the beginning of the financial year and not at the end of the it, when there are bound to be in different constraints on the cash flow and also confusion over what to choose in the last-minute frenzy.
It is critical to know all the possible ways one can save tax, to help plan your budget properly. The IT Act is loaded with big dollops of taxpaying/tax saving information. Ways to save tax have always been an interesting consideration for tax payers all across the world and the Indian tax payer is no exception. And since tax saved is money saved, we hold that to be completely justified. While some of the tax-saving avenues are well-treaded by the tax payers in the nation, there are some roads to tax saving which are lesser known. Two of them are explained below.
Save tax for your contributions to political parties/charitable organizations
In India, you can enjoy a tax deduction if you have contributions to make to a political party. The IT Act says that any amount of money that is donated to an acknowledged political party can be lawfully claimed for deduction, under Section 80GGC (For corporate it is 80 GGB). This deduction was launched very recently, April 2010, and the same applies to any contributions made to electoral trusts as well.
There is no set upper limit for the deduction amount, but it can exclusively be claimed only if the contribution goes into the party funds.
It is interesting to note here that deduction on donations does not come into play if you are donating money to an individual. It is only applicable if you are donating it to specific organizations.
For example, Section 80G of the IT Act says that if you are donating funds to a charitable organization, you are entitled to get a deduction of 50-100% for that. However, note that there exists a ceiling here -- the percentage of deduction is restricted to 10% of the donor's (gross) total income. Also, only donations in cash are taken into consideration for the purpose and not donations in kind.
Needless to say that the amount of tax you can save is dependent on the amount that you contribute.
You would require a proof to claim this deduction and that's a stamped receipt of the amount donated, from the party or the organization to which you have made the contribution.
Save tax on disabilities
The Indian taxman has a heart of gold and it is seen nowhere better than this. Section 80 U of the IT Act says that if a taxpayer happens to suffer from any of the listed disabilities (see below), he is entitled to a tax deduction of Rs 75,000.
If the tax payer has a disabled dependent (spouse/parents/children/siblings) to support, Sec 80DD allows him to claim the same.
Disability list includes low vision, blindness, hearing disability, leprosy, loco-motor impediment, mental illness and mental retardation.
Things to note:
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