The Most Comprehensive Guide For Tax Saving and Filing ITR in 2021
13 Nov 2022
No one told you growing up included figuring out the best tax-saving plan, right?
Well, it turns out that neither did Einstein seem to have figured it out.
“The hardest thing in the world to understand is Income Tax” — Albert Einstein
Now that we have established you aren’t alone, let’s get into the nitty-gritty of it. Choosing the best tax-saving plan is not just about reducing tax liability but so much more.
Tax planning for individuals includes smart planning of tax obligations and investments in a way that’s customized to suit one’s unique financial goals, risk profile, lifestyle, and retirement plans.
In this article, we discuss:
Here’s a checklist of questions that influence tax planning for individual
What’s my current gross annual income?
What are my financial goals (Buy a car/plot/house, Save for retirement, Invest in gold/mutual funds for long-term wealth, and so on)
How much money do I need and when do I need it to acquire my goals?
How much risk can I take?
Where, when, and how should I invest to ensure maximum tax efficiency?
Efficient tax planning for individuals falling under the IT Bracket (with a gross annual income of more than 2.5 lakhs p.a) is of utmost importance to streamline an efficient best tax saving plan that ensures good returns while still adhering to the legal norms.
Once you have figured out all the above, the answer to the question “How to file ITR on income tax portal?” can be very simple.
Different types of Tax Planning strategies:
1. Permissive tax planning
The primary objective here is to reduce tax liabilities by availing all concessions, incentives, and exemptions under the right categories as per law.
2. Purposive tax planning
Charting out a specific goal-oriented best tax saving plan by making the right investments at the right time, depreciating asset replacement, and business expansion initiatives to get the maximum out of the tax exemptions and also to ensure profitable returns.
3. Short-range tax planning
Short-range planning is when the tax planning is done at the financial year closure by utilizing the available options to choose the best tax-saving plan. However, this last-minute planning can result in haphazard decisions taken at the last minute to file the ITR in time.
4. Long-range tax planning
Under this category, tax investments are planned at the beginning of the financial year to ensure there’s ample time to make the right investments and financial decisions to reduce the taxable income.
Tax planning for Individuals:
Legal tax saving options under Section 80 C to 80 U as per the Income Tax Act of 1961, can help avail tax exemptions for individuals thus reducing the taxable income. Some of the categories in which concessions and deductions are applicable includes:
Public Provident Fund (PPF)
Employees’ Provident Fund
Sukanya Samriddhi Yojana (SSY) and other Government schemes
National Saving Certificate (NSC)
5-year bank fixed deposits
National Pension Scheme (NPS)
Health Insurance Premium for family and parents
Support and Maintenance of a dependent with a permanent disability
Medical treatment of certain diseases
Interest paid for educational loan
Housing loan interests for first time home buyers
Relief fund and charity contributions
Rent expenses in the case of absence of HRA
Interest from Bank and Post office savings account
Differently-abled individuals with certain disabilities
The tax rate according to the old and new regime is given below:
Tax Planning for Businesses:
Some of the categories where deductions are applicable to help choose the best tax saving plan for businesses include:
Travelling and Accommodation expenses
Business Utilities (Phone bills, work from home electricity bills)
Depreciation of capital expenses
Donations to the registered charities and relief funds
Funding retirement plans of employees
Depreciation of equipment and machinery for the manufacturing sector
Employing a family member
Some tax-saving oriented practices to follow for businesses include:
Digital transactions instead of cash payments
Deducting tax at source
Appropriate timing of Business Income and Expense
Payments of municipal taxes by cheque
Thorough filing of ITR to avoid a late fee
The Impact of the New Income Tax Plan proposed under Budget 2020
The 2020 Budget offers a parallel, new tax regime with revised income tax slabs and tax rates.
The new tax regime promises lower income tax rates but with limited tax exemptions and deductions.
Under the existing tax regime, 130 overall exemptions and deductions can be availed while around 70 of them have been removed in the new tax regime.
Indian Taxpayers can opt to file their taxes under the existing tax regime or the new regime based on what’s most beneficial to them.
The factors influencing the choice of tax regime include gross annual income, salary structure, financial goals, lifestyle choices, and age of the taxpayer.
For individuals with taxable income below INR 5,00,000, tax rates remain the same in both regimes.
The new tax regime may not be beneficial for individuals already claiming various tax exemptions under the existing regime.
The new regime however promises high net disposable income in the present while considerably impacting the long-term savings including retirement benefits.
Step-by-step Procedure on Filing Taxes
Here's a step-by-step guide along with the comprehensive Tax Wizard by MoneyPlanned will help you file your taxes with ease and maximize your tax savings.
Step 1: Calculate Your Tax Payable
First things first.
Calculate your total tax payable and the goal is obviously to minimize it to the maximum possible extent.
After the 2020 Union Budget, you can opt for one of the two options for filing taxes:
The Old Regime (with exemptions like 80C, etc)
New Regime (without any exemptions)
Step 2: Collect All Required Documents For Filing ITR
Here’s a comprehensive list of all documents that are involved in the tax filing process that comes in handy.
Form 16: This is the TDS (Tax Deducted at Source) certificate provided by your employer. It contains the calculations for TDS and breakup of any exemptions availed such as HRA.
Form 26AS: This is your overall tax statement, available at www.incometaxindiaefiling.gov.in. It includes the following: — TDS deducted by your employer — TDS deducted by Banks, etc — TDS deducted by any other parties from payments made to you — Advance taxes paid by you — Self-assessment tax paid by you, if any.
Tax saving investment proofs: List of all the proofs for availing deductions like 80C, 80CCD, etc. Here are a few income-generating investments that also help save tax. — Employee’s Provident Fund (EPF) — Public Provident Fund (PPF) — Life Insurance Premium — Equity Linked Savings Scheme (ELSS) — Sukanya Samriddhi Yojana (SSY) — National Pension Scheme (NPS)
Home Loan Statement: Statement from Bank/NBFC showing principal and interest payment of the home loan. It is used to avail deductions under Section 24.
Interest certificates: You need to state the sources of interest income in ITR, from a bank savings account, post office, and other investments. Alternatively, you can use your updated passbook.
Form 16A/16B/16C: 16A is for TDS deducted on Fixed Deposits, Recurring Deposits, etc. 16B is for TDS on sale of a property. 16C is for TDS on rental income deducted by your tenant.
Capital Gains: Get statements from Mutual Fund Houses or Brokers for gains from mutual funds or shares. For the sale of a property, deed and sale deed needs to be purchased.
Other Deduction Claims Proofs: To claim deductions for Sec 80D-U you need the respective proofs like Mediclaim receipts, Education loan statement, etc.
Details of Investments in Unlisted Companies: The following details of the company need to be furnished — PAN of the company — Opening balance — Shares acquired during the year — Shares transferred during the year — Closing balance.
Step 3: File Your ITR On Income Tax Portal
There are three types of ITR Forms namely ITR-1, ITR-2, ITR-3, and ITR-4 classified based on your level/source of income, asset value, and a few other factors.
Here’s a checklist for you to figure out which ITR form is applicable to you.
Once you have selected which ITR form you need to fill, you can proceed to file and submit the ITR.
The Procedure for Filing ITR-1 Online
If ITR-1 is applicable to you, here’s a detailed explanation for the e-filing of ITR.
#1: Log in to your e-Tax account on this link
Click on “Filing of Income Tax Return”.
#2: Select “Prepare and Submit Online” under Submission mode.
Prepare and Submit Online — Income Tax Portal
#3: Verify and edit all the details about income, deductions, etc. according to your documents
#4: Verify the TDS (Tax Deducted at Source) and make sure all the details are filled correctly without any errors.
If you discover any omission or wrong statements after filing your IT return, you can furnish a revised return.
#5: Then, you get the final tax payable details.
Verify for a tax refund or any balance amount payable.
#6: If you have any tax refund, select your account to receive it.
Else, complete the payment of the balance tax amount to the Income Tax Department on the link enclosed below.
Select Challan 280 and proceed by filling up your details.
Save the BSR code and Challan number from the receipt and fill it up in the ITR.
#7: Upon payment and filling up the ITR, head to the final section, and select either of the options to complete your verification.
That’s it! Hurray! You’ve finished filing your ITR. Wasn't it easy?
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