Tax Tips 2020 - How to get the biggest tax refund

Introduction

Taxes are an invincible part of our daily life, whether it is on goods and services we use or on the income we earn. However, we can greatly reduce the tax burden and its impact, if we can plan accordingly.

In this blog, we will discuss how to get more on your tax return and maximise your savings in the long term. But first, let's start with the basics. 

Income Tax Return (ITR) - What is it?

Income Tax Return or ITR is a form, where an assessee (individual) files his/her income and tax information during the financial year to the Income Tax Department. These returns should be filed before the end of the specified due date i.e. 31^st July to avoid penalties. 

There are 7 different types of income tax return forms, from ITR 1 to ITR 7 and each form applies to different types of assesses. For example, ITR 1 should be used by salaried/pensioners having an annual income up to Rs 50 lakh. Whereas, ITR 3 is meant for individuals and Hindu Undivided Family (HUF) earning an income under the head "Profit and Gain from Business or Profession”.

5 tax-saving tips to maximise returns

There are several provisions through which you can claim deductions from your taxable income and maximise your returns through savings. Following are the 5 tax-saving tips to enable you to maximise your tax refunds:

Open a Public Provident Fund (PPF) (Section 80C)

Investment in the public provident fund is eligible for tax deductions under section 80C of the Income Tax Act. The minimum investment limit is Rs 500 and the maximum limit for claiming the deduction is Rs 1.5 lakh per annum. 

The PPF account offers a higher interest rate on the deposit and has a lock-in period of 15 years, which can be extended in a block of 5 years. Partial withdrawal from the PPF account is allowed after 7 years. Further, the depositor can also raise a loan against their deposits in the PPF account from the third year of opening the account.

The interest earned on the deposit is completely tax-free at the hand of the depositor.

Donate to charitable organisations (Section 80G)

Under Section 80G, the donations made to specified relief funds like Prime Minister Relief Fund and other charitable organisations are deducted from the gross total income before arriving at the taxable income. 

100% or 50% deduction is allowed depending on the type of charitable institution. As a taxpayer, you need to furnish the proof of donation while filing your ITR to claim the deduction.

Buy a new residential property (Section 54)

The profit made from selling a residential property is exempt from taxation under Section 54, but under the following conditions:

• The residential property sold was in possession for 3 years and more
• The assessee should have purchased another residential property before 1 year of selling the old residential property or within 2 years. In case of construction of the residential property, it should be completed within 3 years from the date of selling the old property.

Since the old property held for 3 years, the capital gains arising from its sale proceeds qualify for long term capital gain, which is fully exempt from taxation.

Claim for travel costs (Section 10(5))

Section 10(5) of the Income Tax Act, which is commonly known as Leave Travel Allowance (LTA). LTA is a remuneration paid by an employer towards the employee's travel cost (with family) within the country, while he/she is on leave.

The amount received under LTA is fully exempt from tax under the specified section.

Get a refund for medical treatments (Section 80DDB)

Section 80DDB allows tax rebate on medical treatment for specified diseases like thalassemia, kidney failure, cancer or any life-threatening diseases. The rebate can be claimed on the expenses incurred on self or on the dependent with the specified disease.

An assesse can claim a tax rebate of Rs 40,000 or the actual amount spent, whichever is less. 

Senior citizens and super senior citizens are allowed a maximum deduction of up to Rs 1,00,000.

Conclusion

There are several other provisions through which you can claim some big tax refund like:

• Tax rebate on interest paid on home loan under section 24B
• Tax deductions for health insurance premium under section 80D
• Can claim tax deductions for house rent paid under section 80 GG

Using these tax-saving tips, you not only end up saving on tax returns but also you are able to inculcate the habit of personal finance planning.