Sections 80C, 80D, 80E, 80G, 80DDB… This list might appear endless to the uninformed.
The Indian taxpayer can save on taxes in multiple ways. But it requires the right tax planning strategy, documentation, tax law know-how, and more. Most importantly, the individual has to be aware of the common tax deductions and exceptions. Seeking help from the employer or a professional financial advisor is a prudent step.
In conversation with greytHR, CA Ruchika Bhagat, Managing Director, Brooks Consulting Pvt Ltd, discussed ways to unlock the power of tax deductions. She also suggested a few chatgstrategies to help employees reduce their tax liability and maximize savings.
Let’s take a look at the common mistakes taxpayers commit when claiming deductions.
Tax calculations can go awry if the documentation is incomplete. The taxpayer has to keep all the documents ready in advance and submit them to claim the eligible deductions. Issues usually occur in the case of HRA and insurance cliams. Therefore, it’s advisable to keep all the agreements, receipts, and other documents organized in one place to avert last-minute issues.
Many employees prefer to make the tax calculations and file their IT returns themselves. While doing so, some make errors since they don’t understand the technicalities. They may not be aware of the regime that suits them best. Hence, employees must have thorough knowledge before attempting this task. Employers can also enlighten them.
When it comes to tax deductions, there is a list of acceptable claims. Not all employers are aware of this. In some cases, employees claim both per diem expenses and reimbursements together, but they are eligible to claim only one of the above two.
When there is a company change, some employees think they are eligible to claim the standard deduction twice: once from the previous employer and once from the current one. This is not true. Hence, the employee has to know the deduction limits and disclose all the salary components to the new employer, so the tax calculation is accurate.
Long-term capital gains, short-term capital gains, and reinvestment ‒ All these terms confound many taxpayers, so they end up making the wrong calculations and paying more taxes. If an employee wants an exemption for capital gains, the individual has to reinvest the returns in a capital gains account at the right time (before ITR filing) for a specified duration.
Want to dive deeper into this topic?
Listen to the recording of the entire webinar