Tax Services

Are You Paying Too Much Tax By Not Knowing What You Can Claim?

Probably you are paying more tax due to lack of knowledge, faulty investment strategies and lack of expert guidance. Continue reading to find out how you can avoid the same.

The most common reason for paying higher tax is the failure to avail full deduction under Section 80C. The information below can prove to be helpful for you.

  • Opting for dividends in non-equity funds

The dividend distribution tax (DDT) is a tax that most of the investors pay unknowingly. It is taxed on dividends paid by mutual fund schemes except equity funds and equity oriented balanced schemes. For all other schemes, fund houses cut a DDT of 28.3%. Many investors, particularly elderly people who have chosen the dividend option of monthly income plans or debt funds are unaware that they are paying DDT.

  • Unable to book losses

It may sound weird, but you can benefit from your losses. If you suffered a loss in stock market this year, then you can adjust that against any short-term or long-term capital gains from the sale of debt funds, gold or property. Short term capital losses can be set off against both short-term capital gains and taxable long term capital gains. This can be very useful for people who have booked profits on debt funds in the same year. However, there are some more conditions that should be met.

  • Not using HRA benefit

The HRA or House Rent Allowance is generally a huge part of the salary. People living in rented homes can benefit from deduction under Section 10 (13 A). If you live in your own home, you can benefit from this deduction. But, if you live in your parents’ home, there is a solution. You can pay rent to them and claim HRA exemption. This strategy is useful only when you are in the higher tax bracket and the income of your parents is lower.

  • Investing in tax-inefficient options

Almost 56% of total domestic savings are deposited in fixed deposits in India. But these are not tax efficient. The total interest earned on the FDs is taxed as an earning at the rates applicable to the investor. In the highest tax bracket, 30.9% tax cuts the post-tax return of these deposits noticeably. Kisan Vikas Patra, NSCs, infrastructure bonds and recurring deposits get the same tax treatment.

You need to find other tax efficient debt instruments. Debt funds is one such debt instrument that allows you to defer the tax till you withdraw the investment. By holding them for three years, you also get the advantage of lower tax.

These things, clearly indicate by having a professional by your side is important. If you seek assistance of accountant in Indore, MP, feel free to contact us.

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