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5 Ways to Save Income Tax

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  • Know the available tax savings options and plan to use it to your advantage
  • Tax savings is possible under various sections of the income tax act, which one should know and exploit if possible to the fullest
  • If you have a home loan for an affordable housing project, you can avail additional tax benefits
Tax

Ask any taxpayer for their one big wish and chances are you will hear them want income tax to go away completely. While that is too much of a wishful thinking today, there are definitely ways to reduce one’s tax liabilities. On its part the Income Tax Act has created provisions by which taxpayers; especially salaried individuals can claim certain deductions in order to save on taxes. However, to avail the benefits of such deductions, the individual must ensure proper tax planning during the year. Do not be a victim of starting late to save taxes or planning to save for it.

Typically, tax deductions are available on the Gross Total Income (GTI) of the taxpayer and income tax is levied on the balance income, as per the tax slabs in force that the taxpayer falls in. The advantage of planning comes into play here because, if you prepare in advance, the chances of extracting the most of your tax savings will be possible. Moreover, planning gives you that much more time to make tax planning be aligned with your overall financial plans. Here are five ways in which you could save tax in a legal manner and smartly.

Savings under Section 80C, Section 80CCC and Section 80CCD of the Income Tax Act

This is by far the biggest window available to save taxes. To encourage the habit of saving, the tax authorities and the government permits certain investment-linked deductions, provided the amount is invested in instruments as specified in Section 80C, Section 80CCC & Section 80CCD of the Income Tax Act. The maximum collective deduction in a financial year allowed under Section 80C, Section 80CCC & Section 80CCD is Rs 1.5 lakh.

 

The most common investment instruments covered under Section 80C, Section 80CCC & Section 80CCD are: Public Provident Fund Accounts (PPF), 5-Year Tax Saving Fixed Deposit, Pension Plans Contribution to Employee Provident Fund (EPF), Life Insurance Policy, National Savings Certificate (NSC), National Pension Scheme (NPS) and Equity-Linked Savings Scheme (ELSS) and few others. There is also provision to for an individual taxpayer to claim an additional deduction of Rs 50,000 U/s 80CCD by investing in the NPS.

Tax savings with home loan

If a taxpayer individual has taken a home loan, then they are entitled to claim the deduction for repayment of the principal amount (Deduction of the Principal amount under section 80C), as well as the interest of the home loan (Deduction of the Interest amount under section 24). The maximum deduction allowed under Section 80C is Rs 1.5 lakh and under Section 24, it is 2 lakh.

 

Savings under Section 80D

> Health insurance works as a shield and protects a person and his family from any financial crisis during a medical emergency. It’s the insurance company which bears the cost of treatment, and ensures that the policyholders can avail the best medical assistance. Fixed benefit health insurance plans provide comprehensive coverage against critical illnesses like heart diseases and cancer. The Income Tax Act permits an individual to save tax through deductions if the taxpayer has paid a premium for insuring their health or the health of their family members like parents, spouse and children.

 

Tax Saving with House Rent paid

If a taxpayer is staying in a rented house and is receiving House Rent Allowance (HRA) from his employer, they can claim deduction U/s 10(13A) of the Income Tax Act. The least of the following will be considered as deduction from the individual’s salary: Actual HRA received from the employer or Payment of actual rent in excess of 10 per cent of basic salary or 50 per cent of the basic salary (if the individual is staying in a metro city) or 40 per cent of the basic salary (if the individual is staying in a non-metro city).

 

However, if the individual is a non-salaried person and does not receive HRA, or does not own a residential property, they can still get the deduction of house rent paid during the year from their taxable income under Section 80GG of the Income Tax Act. In this case, the least of the following will be considered as deduction from the individual’s Gross Taxable Income: Rs 60,000 per annum or rent paid less 10 per cent of adjusted total income or 25 per cent of total income for the year.

Tax Saving through Education Loan

Under section 80E of the Income Tax Act, an individual can claim tax deduction on an education loan (for higher studies), if the loan is for them, or their children, spouse or even for a student of whom they are legal guardians. However, only repayment of interest on the education loan is allowed as deduction. That means no deduction on the repayment of the principal amount of loan is allowed. However, the good thing is that there is no maximum limit to claim deduction U/s 80E of the Act for the interest repayment of education loan. The deduction U/s 80E for the education loan is available to an Individual assesse and not to a Hindu Undivided Family (HUF).

 

Tax Planning
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IRDAI notice : Beware of Spurious/ Fraud Phone Calls: IRDAI is not involved in activities like selling insurance policies, announcing bonus or investment of premiums. Public receiving such phone calls are requested to lodge a police complaint.

Exide Life Insurance Company Limited.
IRDAI Registration Number: 114, CIN:U66010MH2000PLC377660
Registered Office: First Floor, Unit No.5 to 8, Inizio Building, Opp P&G Plaza, Cardinal Gracious Road, Chakala, Andheri East, Mumbai – 400 099, India
Corporate Office: Third Floor, JP Techno Park, No. 3/1, Millers Road,
Bangalore- 560 001, India.
2022 Exide Life Insurance Company Limited. All rights reserved.

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