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How to avoide Tax

Here are some of the commonly used tax avoidance strategies:

Increase in retirement savings: Retirement savings like PPF or NPS are perfect tax saving instruments. Investments in PPF account enjoy tax benefits under Section 80C of the Income Tax Act. NPS can fetch you an additional tax saving of Rs 50,000 above the regular tax saving limit of Rs 1.5 Lakh a year under Section 80C. This is under Section 80CCD(1B).

Showing monetary transactions as loans: You may show any monetary transactions made by you as a loan to your relatives at nominal interest rates. These transactions are tax-free and the income from such investments is tax-free.

Tax saving on long-term gains: You can invest gifted money received from relatives in shares and equity mutual funds for a period longer than a year. The long-term gains on equities held for more than a year are exempt from taxes, up to Rs 1 Lakh. Gold, real estate and debt mutual funds enjoy tax benefits on long term capital gains.

Education scholarships: Any scholarships received from the government or private trusts for the purpose of funding education are totally tax-free.

Donations to charity and political parties: Donations made towards political parties are fully tax exempt. Similarly, donations made to charitable institutions can be claimed under Section 80G of the Income Tax Act. However, one needs to furnish original receipts in order to claim such deductions.

Inherited money through a will: Any individual who has inherited money through a WILL is not liable to pay taxes on the inherited property.

Agricultural income: Any income received from farming or agricultural activities done on the agricultural land is fully tax-free in India.

Is Tax Avoidance Illegal?


Tax avoidance is not illegal in India. Tax avoidance is generally done by finding loopholes in the legal provisions. So, a person is not breaking any laws. The activities are carried out in compliance with the law. An example of tax avoidance is that the government allows deduction on certain charitable contributions. In case you have paid any amount to a charity then you can claim deductions  while filing  income tax returns for the given financial year, provided the donation enjoys tax benefits.
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