The amount of savings is actually how much people earn. Every taxpayer tries to evade taxes in several ways. However, there are some legal tax-saving options to gain financial savings.
The Indian income tax regime offers multiple ways for taxpayers to save on taxes. Working-class people can invest money in various tax-saving schemes to reduce their net taxable income. There are also multiple expenses they can incur to help income tax savings.
One must note that the income tax regime has various deductions and exemptions to save income tax based on various income slabs. One must choose the correct tax saving options as per their income slab.
This article explains the top 10 ways to save income tax and manage finances with utmost ease.
Choosing the best tax-saving options
Many people find it disheartening to spend a huge portion of their income on paying taxes. It is important to be aware of the productive income tax saving options per the new income tax rules. The 10 ways t save on income tax are as follows:
1. Availing of a home loan – If individuals take a home loan and fulfil all the required conditions of section 80C deduction, they can claim a deduction of a maximum of ₹1,50,000 under this section. It must be noted that this limit of ₹1,50,000 is only applicable for the repayment of the principal amount. The provision for saving tax on payment of interest falls under section 24 and is titled ‘House Property’. This allowed deduction is for up to ₹2,00,000. Furthermore, if an individual takes a joint home loan, each joint holder can avail of these deductions.
Other popular investment options under section 80C are:
• National Pension Scheme
• Public Provident Fund
• Fixed Deposit for 5 years
• Children’s Tuition Fees
• National Savings Certificate
2. Loan taken for educational purposes – The amount of interest on a loan taken for educational purposes is completely allowed as a deduction under section 80E. The government has not specified an upper limit on the deduction applicable to date.
3. Health Insurance Premium – The provisions of section 80D of the income tax state the deduction of health insurance premiums. The premium paid on a person’s health insurance and his/her family helps them save tax. The deduction limit is ₹25000 and an additional ₹25000 for the parents’ health insurance. If any individual is a senior citizen, the deduction amount is ₹50000 instead of ₹25000.
4. Treatment of dependent disabled – As per section 80DD, one can claim a flat deduction of ₹75000 for the treatment of a dependent disabled with 40%–80% of disability. In case of more than 80% disability, they can claim a flat deduction of ₹1,00,000. For this, individuals must provide a valid disability certificate to avail of the benefits of this deduction.
5. Treatment of specific diseases – Section 80DDB provides the benefit of saving taxes on expenses incurred for the treatment of specific diseases. This tax-saving option applies to diseases like cancer, dementia, AIDS, etc. One can claim a deduction of up to ₹40,000 under this section. In the case of the treatment of a senior citizen, the amount of deduction is up to ₹1,00,000.
6. Donation to charity – Section 80G of the income tax act allows deduction on the amount donated for charitable purposes. People can donate their money to charitable institutions or relief funds. They have to submit a valid certificate obtained from the institution to avail of the deduction. Certain donations fall under the deduction of the entire 100% donated amount, while others fall under the category of 50% donated amount. It must be noted that donations in kind, such as food, clothes, etc., are not applied as deductions under this section.
7. Donations to a political party – People can also donate to a political party for tax savings. Section 80GGC allows the entire amount donated to a political party as a deduction. The entire 100% amount is allowed as a deduction. However, it must be noted that the donation made in cash is not eligible for deduction under this section.
8. Donation for scientific research or rural development – Section 80GGA allows the deduction of 100% amount donated for scientific research or rural development. It must be noted that one must not have any income from a business or profession to avail of this tax-saving option.
9. House Rent Allowance – Section 10(13A) allows house rent allowance for salaried individuals. One can avail of this exemption if one lives in a rented home. The limit of exemption is the least of the following
• Actual HRA received
• 40% of the amount of HRA if residing in a non-metro city and 50% in case of a metro city (Delhi, Chennai, Kolkata, and Mumbai)
• Rent paid – 10% of the annual salary
10. Voluntary Retirement Scheme – Many individuals apply for the voluntary retirement scheme and take their entire payout. The amount received for voluntary retirement is not taxable until it is above ₹5,00,000.
Tax saving schemes prove to be the most effective way to minimise the tax burden. As per the new income tax rules, there are various deductions or exemptions that people can claim and forego. Also, one must carefully study all the deductions and take the benefits of only those schemes that suit their financial needs. They must be clear with their goals for saving income tax.
We hope that this article has explained several tax saving schemes. Taxpayers can also consult the experts at Piramal Finance for other financial assistance like business loans and solutions.