Tuesday , November 28 2023
save income tax

How to Save Income Tax in India: Complete Tax Saving Guide

Be it the chartered accountant, the employer, or the taxmen, each year we get reminders to plan our taxes. The truth is we all have a fantasy about living in a tax-free world and at some point in our lives, most of us can’t actually take the burden of paying taxes. 

Although taxes are viewed as a financial burden, a lack of knowledge about tax planning can be worse. Whether you’re an entrepreneur or a salaried person, you have to pay taxes to the government

Everyone looks for opportunities that can save them money paid as tax and each one has its own way of doing so. There are many different options under Section 80C, 80D, and 80G of the Income Tax Act, that help us to save taxes. 

In this article, you will find the best ways of saving your taxes in India.

Avail a Home Loan under Sec 80C

Availability of a home loan brings dual benefits such as diminished tax liability along with the happiness of owning your home. Under Sec 80C and 24(b), the tax burden is reduced by diminishing monetary liability. 

  • Under Sec 80C, deduction of up to Rs 1.5 Lakh is allowed on total annual income spent towards repayment of the principal borrowed amount.
  • Under Section 24 (b), one can exempt tax valued up to Rs 2 Lakh annually, on the interest section of the home loan.
  • Under Sec 80 EEA, one can claim an additional reduction on annual tax liability, if you’re a first-time homeowner.

There are many other government-mandated schemes too such as :

  • PMAY- Pradhan Mantri Awas Yojana
  • DDR- Delhi Development Authority

Undertake Investments

One of the best ways to save taxes along with high returns is by investing in government-mandated schemes and capital markets. There are various instruments such as ELSS (Equity Linked Saving Schemes) in which you can invest and reduce income tax in India under Section 80C. 

With the help of the ELSS scheme, a tax waiver can invest up to Rs 1.5 Lakh and it comes with a three-year lock-in period. And if the capital gain is below Rs 1 Lakh, then no tax has to be paid on the profits realized. 

Claim Exemptions on Rented Premises

Under Section 10(13A), tax exemptions are granted under House rent allowance (HRA). While under Section 80GG, if your monthly income doesn’t include the HRA, then one can claim tax benefits on early rental expenses. 

The total deductions on income tax are calculated against the minimum value, stated as :

  • 25% of the gross total income.
  • Rent payment of up to Rs 5000 per month.
  • Total rent minus 10% of basic salary.

However, the total tax exemption on rent paid is calculated as the minimum value of three components, stated as :

  • Annual HRA received.
  • Total annual rent- 10% of the basic salary.
  • If any individual stays in a metro city then 50% of the yearly salary (in the case of non-metro cities 40% is allowed). 

Thus, by keeping the above-stated points in mind one can learn about how to save tax in India on salary through HRA. 

Expenses for treating specific diseases

Under Section 80DDB, tax benefits and tax deductions up to Rs 40,000 are applicable for expenses incurred towards treating diseases such as Aids, Cancer, Dementia, etc. 

Therefore, the amount increases to Rs. 1 lakh in case of any dependent senior citizen.

Donate to Charity

Under Section 80G, a person can save the money paid as tax by donating to certified charities and must have a valid certificate from the charity organization. These charities can be done through the wire and bank transfers and one enjoys partial or complete tax exemptions.

Utilize your Rs 1.5 Lakh limit under Section 80C

Under Section 80C, use your Rs 1.5 Lakh limit and start making investments as one investment reduces room for others: 

  • Tax-Saver FDs 

Under 5-year tax-saver FDs, one can get a tax deduction up to Rs 1.5 Lakh as they carry a fixed rate of interest between 7-8% and interest are taxable.

  • NSC (National Saving Certificate) 

It has a fixed rate of interest which is 8% and a tenure of 5 years. The interest is automatically counted towards the Rs 1.5 lakh limit and if no other investment is using up the limit then tax-deductible is allowed under the 80C limit. 

  • NPS (National Pension System) 

Under Section 80CCD, the contribution made to NPS of up to Rs 1.5 Lakh has a deduction facility. Under Section 80CCD (1B), deduction is available up to Rs 50,000. 

  • SSY (Sukanya Samriddhi Yojana) 

This deduction is allowed for parents of a girl child below the age of 10. It has a tenure until the girl marries after turning 18 or 21 years. The interest is tax-free and the interest rate prevails above 8.5%

Pay Health Insurance Premiums

Under Section 80D, a deduction of up to Rs 25,000 is available for health insurance premiums. The deduction limit is increased to Rs 50,000 for senior citizens. 

And in case, any individual is contributing health insurance both for himself and senior citizen parents then he/she can avail up to Rs 75,000 per annum. 

Income from agriculture

Under Section 10(1), any kind of income from agricultural land is exempted from tax. Thus, such incomes are related to rent from land, the amount generated through agricultural products, the amount through a farm building, and revenue from the land. 

HUF and Extra income

Apart from your primary salary income, if you’re someone who earns secondary income too then you can use that extra income to save money paid as tax. If you earn any amount from freelancing then you will have to open a separate HUF account

One can also keep their money in saving accounts up to Rs 10,000 as it is tax-free under Section 80TTA.

In conclusion, we hope that the aforementioned ways of saving tax in India will definitely help you in case of tax burden and financial burdens. This tax-saving guide will make your planning journey smooth sailing

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