How can you save tax by investing your blogging income into wealth-generating and tax-saving resources? It is essential to save your hard-earned blog money. It’s closing of the tax year and here is how we save tax.
These tips are mostly targeted at Indian bloggers and show how to save tax in the Indian tax systems. We learned some great tax-saving tips over the years and here they are for you to earn and save more blogging money in India.
1. Public Provident Fund (PPF)
This should be your first tax saving instrument where you can invest up to INR 1,50,000 every year and earn tax-free income at over 8%. The fund lasts 15 years and continues to compound money with huge monetary gains. You can continue to renew every 5 years after 15 years. You can open an account at post offices or select banks.
It is the best tax-saving tool now and can get you maximum deduction under Section 80C up to INR 1.5 lakh. Invest here first.
2. Term Life Insurance
If you are the primary earner in your family and professional blogging is your main job, then life insurance is a must to support your family in case of any life risk event. It is advisable to put money in term insurance (which is just like car insurance – the yearly premium goes away if unclaimed), which allows you to get a huge life insurance cover as premium per year is cheaper.
It is advisable to get a life cover for up to 15-20 times your annual income. So if you earn INR 20 Lakh every year, get life insurance of at least INR 2 Crore. The younger age you apply at, the lower the premium, so start early at 30 years of age. Choose a reliable company that will last 30 years and actually pays the insurance benefit when needed. You can get a deduction up to INR 1,50,000 under Section 80CCC (if you have not filled your PPF limit).
There are other insurance plans which can give yearly income or even return your sum back after a number of years, but the cover will be much lower than the term insurance plans, with much higher premiums.
3. Health Insurance
It is a good idea to get health insurance coverage. If you are young, lower is the premium. You can easily get a family floater group health policy to cover illness-related cover for your whole family. Usually, there is no pre-medical test under 45 years of age and you can get a cover of INR 10 Lakhs for a few thousand rupees and the whole process can be completed online. Since many illnesses get cover after 2-4 years, it is best to start early.
Health insurance premiums are deductible from income under section 80D up to INR 15,000.
4. Tax-Free Bonds
Theses bond are AAA-rated bonds from big government companies which are rated safe investments in the long term. This year the government released a bonanza to investors by offering up to 9.01% tax-free bonds for 20 years period. Imagine over 9% tax-free income being generated every year – all tax-free.
Remember such issues come at end of the tax year closing and last only a few days before getting oversubscribed. It is a super investment tool with no risk, and you need to keep a lookout for these every year. You can also buy from the secondary stock market at a premium price.
5. Systematic Investment Plans (SIP)
While the stock market is at the top, buying stocks or mutual funds might seem risky. But regular blogging income investment in top mutual funds via SIP or systematic investment plans will generate huge wealth over a period of years. It is best to track the best mutual funds and invest in large-cap diversified equity funds over 3-5 years to get back good returns.
SIP can be used to invest a small amount like INR 5,000 every month and harness the power of rupee averaging and compounding to generate wealth. It buys more units when the market falls and less when the market rises for the same amount and over time will increase returns. If you can hold units for over 12-18 months, there will be no tax on profits as it is long term capital gains.
6. Bank Fixed Deposits
These can offer up to 9% pretax returns and are a good way to park money which can be retrieved instantly. Bank fixed deposits are easy to create and redeem online, but the interest is taxed. You can park balance money here. It is better than earning a measly 3-4% in your savings account. Note that up to INR 10,000 interest income is tax-free under section 80TTA.
Choose the correct time period before locking your money as they may be penalties for premature FD closure. Also notice banks may have special periods like 444 days etc. for special higher rates.
7. Business Expenses
You can show all blogging expenses as business income and this will help to cover your profits. This will typically include hosting costs, domain name fees, buying themes/plugins, new software, laptops, gadgets etc. It is essential to maintain all bills and receipts for proper record processing.
Eventually, you pay taxes on business profits, and there are many blogging expenses and depreciation costs that can be adjusted – so consult your chartered accountant on how to pay correct taxes on your business income.
Many donations are 100% deductible from income tax without any qualifying limit under Section 80G. If you earn enough through your blogging skills, you can donate to a specific charity, service organizations, relief funds, social causes, etc. and claim deduction in income tax. This way you serve the community as well as save tax.
In the end … It is worthwhile hiring a chartered accountant, to correctly assess your blogging income and expenses and help you get proper tax relief, save taxes and file tax returns correctly.
How do you save taxes on your blogging income? Please share in comments.