Income tax is the tax paid by an individual or a Hindu Undivided Family or any taxpayer other than companies, on the income received. The revenue generated from these taxes is vital for the smooth functioning of the country as the government needs these funds to foster economic growth and development. The tax varies with the respective income as per the tax slab in India.
Income taxpayers always look forward to opportunities that can help them save tax and reduce their entire tax liability. Many people search for tax saving investment options and how to save income tax in India, every time the ITR filing date steps closer. This is fair too as no one would like to miss out on such income tax saving options that can save their money paid as tax.
There are numerous lawful ways to save tax under the Income Tax Act, 1961 that entail some of the tax-saving mutual funds, NPS, insurance premiums, medical insurance, home loan, and many others. Whether you are a salaried individual, a freelancer, a business owner, or earn an income from your investments, you have to pay the taxes to the government as per the Income Tax Act within the stipulated time.
Whenever the question of how to reduce taxable income comes in, there are some predominant sections under which you can save tax, they include 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80CCG, 80G. Enlisted below are the sections and exemption limits for each. If you are a salaried person, availing benefits of these sections is probably the best fit for you. However, many other exemptions are available in various special situations but these are the major exemptions that are usually preferred by people.
As it’s evident, most of these exemptions cannot cover only your basic needs and expenses. Understanding these allowances and exemptions is the first step while planning your finances.
Following is the list of sections along with their respective investments to help you understand how to save tax under each section:
|80C||Investments in PPF, PF, insurance, NPS, ELSS, etc.||150,000|
|800||Investment in medical insurance for self or parents||25,000/50,000|
|80EE||Interest on Home loan||50,000|
|80EEA||Interest on Home loan||1,50,000|
|80EEB||Interest on electric vehicle loan||1,50,000|
|80E||Interest on education loan||Full amount|
|24||Interest paid on the home loan||200,000|
|10(13A)||House Rent Allowance (HRA)||As per salary structure|
Section 80C is one of the most common yet prominent tax saving options that are available to individuals and HUFs in India. It has multiple investments and expenses options that you can claim deductions on – up to a limit of Rs. 1.5 lakh in a financial year. Below-mentioned is some of the investment options available under 80C:
It is a type of mutual fund that comes with a lock-in period of 3 years. It is the one and only category of mutual fund in India, that qualifies for a tax deduction under Section 80C of the Income Tax Act. Returns provided by ELSS are comparatively higher than other tax-saving schemes in the long run, as the investments are primarily made in equity markets. Investment can be either made in a lump sum amount or SIP (Systematic Investment Plan) method. However, you cannot withdraw your money before the completion of the three-year lock-in period. A significant point to take note of here is the risk factor. Since the investments are made in the stock market, they could carry a relatively high risk. But if you remain consistent, it can prove to be a great option in the long run.
Public Provident Fund is a long-term government savings scheme that has a tenure of 15 years. It is a common income tax saving scheme that is available at most of the banks and post offices in India. Its rates change every quarter. As per the circular, the current interest rate on PPF is 7.1%. The interest on PPF is tax-free. One can open a PPF account with as little as Rs. 500 while the maximum investment allowed in a financial year is Rs. 1.5 lakh, respectively.
National Savings Certificate is another significant income tax saving scheme that provides a fixed rate of interest which is currently at a rate of 6.8% per annum and has a tenure of 5 years. The interest received on NSC is considered as a tax saving option and up to Rs 1.5 lakh can be taken as a rebate under section 80C.
Tax saving FDs are also one of the best ways to save tax. One can avail of a tax deduction of up to Rs 1.5 lakh under 5-year tax-saver FDs. This income tax saving scheme carries a fixed rate of interest which is currently between 6-8% and the interest on these FDs is taxable as per the investor’s tax bracket.
SCSS is a government-backed long-term income tax saving option. It has a tenure of 5 years and can be availed of by those above 60 years of age. It provides a rate of 7.4% (taxable). Under this scheme, one can get a tax deduction of up to Rs 1.5 lakh.
All such parents who have a girl child below the age of 10 can avail benefit from the SSY scheme. One is eligible for tax deduction under Section 80C of up to Rs. 1.5 lakhs for the investments made towards this scheme. This account has a tenure of 21 years or until the girl gets married after turning 18. For this scheme, the current interest rate is set at 8.5%, and the interest earned is tax-free.
EPF is a retirement benefits scheme, especially for salaried employees. Under the EPF Act, 12% of the basic salary and Dearness Allowance (DA) is deducted by the employer. This amount is then deposited in government-recognized provident fund schemes. This is one of the common tax saving schemes wherein the deduction is also counted towards the Rs 1.5 lakh limit under Section 80C.
All such people who have taken a home loan are eligible to claim tax deductions under Section 80C for the part of EMI that goes towards repaying the principal amount. Although, the amount that one would pay as interest does not qualify for tax deductions.
This income tax saving benefit is available only to individual parents or guardians with a maximum of two children per individual. Tax deductions of up to Rs. 1.5 lakh can be claimed on tuition fees paid for your child’s education. Also, this deduction does not depend on the class of the child. Yet, the education course the child is enrolled in must be full-time in an Indian school, college or university. This scheme’s benefits can be claimed and availed by those parents too who have adopted children, are unmarried individuals, or are divorced parents.
How to save income tax other than 80c is another common question that taxpayers search answers for. There are various deductions under Section 80 apart from the 80C deductions that can be used to save on income tax. Tax benefits on health insurance premiums and home loan interest, to name a few. Enlisted below are such provisions-
So these are some of the ways through which you can minimize your tax liability and save tax on income in India. Pick the best tax saving investment options that match well with your financial objectives and future security.