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Everybody is always looking for ways to save some bit of their income tax.
They like grabbing any opportunity that comes the way that helps them save income tax in India.
However, different people have different preferred methods of doing so. Whether you are a salaried employee or have a business, there are many ways to save India’s income tax.
Claiming tax rebates has multiple options under different sections, and it helps you reduce your taxable income.
If you are also one of the people trying to find ways on how to save income tax in India, below are 12 efficient ways to do it –
- 1. Tax Deductions Under Section 80C
- 2. Tax Deductions Under Section 80D
- 3. Tax Deductions Under Section 80DD
- 4. House Rent Allowance
- 5. Tax Benefits through a Home Loan
- 6. Leave Travel Allowance
- 7. Tax benefits through Expenses and Reimbursements
- 8. Gratuity
- 9. Tax Benefits on Scholarship for Education and Education Loan
- 10. Tax Exemptions through Donation or Charity
- 11. Keep Money In Your Savings Account
- 12. Life Insurance Plans
1. Tax Deductions Under Section 80C
Several investment options help one save taxes. Under section 80C, the significant ways in which you can save tax is through:
- Investing in Equity Linked Saving Schemes (ELSS) and saving up to Rs. 46,800 in taxes.
- Invest in tax-saving Fixed Deposits with a lock-in period of 5 years.
- Investments in Public Provident Fund with a lock-in period of 15 years (minimum), further extended by five years if needed.
- Investing in Employee Provident Fund is tax-free if it is withdrawn after five years of continuous service.
- Investments in National Pension System allows pension after retirement to the unrecognized sector and working professionals of India.
2. Tax Deductions Under Section 80D
Section 80D allows tax deductions for a salaried employee based on medical expenses/insurance.
A claim of Rs. 25,000 is an exemption on insurance for self, spouse, and (dependent) children.
Additional tax deductions are available for parents for up to Rs. 25,000 provided the parents are less than 60 years old. If the parents are more than 60 years old, the deductions are up to Rs. 50,000
The maximum deductions are Rs. 1 lakh if both the taxpayer and their parents are more than 60 years of age.
3. Tax Deductions Under Section 80DD
Section 80DD interprets the Disability Deductions for an individual’s disabled relative. Any expenditure that one incurs on treatment, training, and rehabilitation of a disabled dependant relative is covered in this section.
Fixed deduction of Rs. 75,000 if the disability is between 40% to 80%. In a severe disability (more than 80%), the fixed deduction is Rs. 1,25,000.
4. House Rent Allowance
HRA is a part of the salary structure for most employees. It is exempted under section 10 (13A) of the Income Tax Act 1961.
However, the amount received as HRA is a fully taxable income if the employee lives in his own house and doesn’t pay any rent. The tax exemption under house rent allowance is the minimum of, as follows:
- Receiving HRA annually.
- Excess of rent paid annually over 10% of annual basic salary.
- 50% of salary for people living in metro cities, and 40% for those living in non-metro cities.
There are some unique scenarios when one wants to claim tax benefit through HRA like:
- Paying rent to family members/relatives.
- Owning a house, but staying on rent in a different city.
5. Tax Benefits through a Home Loan
The Indian government keeps encouraging its citizens to invest in a house and own one. A home loan is eligible for a tax deduction.
Here are the following significant deductions amongst the several when you plan to buy or build a house on a house loan:
- You can claim up to Rs. 2 lakh from your income as a tax deduction for your home loan’s interest payment’s EMI. One can only claim this interest once the construction of your house is complete.
- If you have not moved to your property yet but are still paying the EMIs, you can claim the pre-construction interests tax benefit. The maximum eligibility remains capped at Rs. 2 lakh in a year.
- The amount is deducted from the principal payment of the home loan, too. One can claim Rs. 1.5 lakh under this segment at max.
- Maximum interest claim of Rs. 2 lakh can be taken under a joint home loan by each party. For principal payment, a maximum of Rs. 1.5 lakh can be claimed in their individual tax returns.
6. Leave Travel Allowance
LTA is an exemption given to the salaried classes during the years of their service and even after the retirement or termination of the services.
It is an allowance that an employee receives from their employer when traveling on leave. LTA exemption is only available for two journeys performed in a block of four calendar years.
The expenses covered are only the main travel costs, i.e., the travel fare.
There are a few conditions to claim LTA:
- An actual journey should take place to avail of the exemption.
- Only domestic travel (i.e., within India) is covered under this exemption.
The employee can avail the benefit for themselves or themselves and their family.
The family includes the employee’s spouse, children, and dependant parents and siblings. Not more than two children born after 1 October 1998 are allowed for the exemption.
7. Tax benefits through Expenses and Reimbursements
If you are a proprietor, the easiest way to avail tax benefits is by showing expenses for the particular financial year.
One can demonstrate several such costs. These include tuition fee expense for children, payment for development authority, purchase of materials, depreciation, etc.
For a salaried employee, they can avail the same benefit through reimbursements.
It is the compensation that the organization pays to the employees for their expenses. Reimbursements are of several types: petrol costs, driver’s salary, expenses incurred during an official trip, etc.
The employer gives gratuity as a benefit not included in an employee’s salary.
A minimum of 5 years of service is necessary to receive gratuity on retirement, resignation, death, or disability.
The least of the following acts as an exemption from taxable income:
- The last salary multiplied by the number of years of employment multiplied by 15/26.
- 20 lakhs in Gratuity.
9. Tax Benefits on Scholarship for Education and Education Loan
To reduce the taxable income, a person can utilize the number of tax benefits provided on education.
The government has provided tax benefits on children’s education allowance, tuition fees, and school fees to promote India’s literacy rate.
- Children’s education is exempted at Rs. 100 per month up to two children. Additionally, Their hostel expenditure exemption is at Rs. 300 per month up to two children.
- One can also claim School and tuition fees for any educational institution up to Rs. 1.5 lakh.
10. Tax Exemptions through Donation or Charity
Under section 80G, one can avail of tax benefits by doing some good work and donating to a cause.
Any Indian entity notified by the tax department for tax deductions comes under this act. You can claim up to 100% donations if you donate to specific lists and entities.
If you donate in cash, you can claim a maximum of Rs. 2,000. However, if you donate via cheques, bank transfers, or digital methods, there is no maximum upper limit to the rebate.
11. Keep Money In Your Savings Account
The easiest way to save tax is by keeping some money in your savings account.
Interest is tax-free Up to Rs. 10,000 in your savings account, according to Section 80TTA. For senior citizens, this limit is Rs. 50,000.
12. Life Insurance Plans
Opting for a life insurance policy is necessary, irrespective of whether it comes with a tax exemption.
One can avail of tax benefits of up to Rs. 1.5 lakh on the premium every year. Purchasing or renewing the life insurance policy is eligible for tax benefits up to Rs. 1.5 lakh as well.
There are many more ways to save tax in India.
However, the points, as mentioned above, are the easiest and sound ones.
You can also choose a few options instead of just one and make a portfolio of the alternatives to tax exemption.
Ensure that whatever option you select entirely aligns with your long term goals, financial objectives, and liquidity needs.