Every one of us is looking for options to save some extra money and saving on taxes is one way to do it. The Indian Income Tax Act allows for certain deductions which can be claimed to save tax at the time of filing of Income Tax Return by all classes of Taxpayers.
Based on the annual income of an individual, the tax payers are categorized in income tax slab. There are several income tax saving tips for Individuals who wants to save tax. These tax saving options can be used by every tax paying class; however, investing in these instruments should be based on your requirements and needs. Below we have given some insight on effective ways to save taxes.
- SAVE TAX UNDER SECTION 80C, SECTION 80CCC, SECTION 80CCD:
The most popular tax-saving options available to individuals and HUFs in India are under Section 80C of the Income Tax Act. The Govt allows certain deductions provided the amount saved is invested in the Instruments as specified in Section 80C, Section 80CCC & Section 80CCD. The maximum combined deduction to save tax by investing under any of these sections alone or in combination but the total deduction allowed would be limited to Rs. 1,50,000 only.
- SAVE TAX UNDER SECTION 80D, SECTION 80DD, SECTION 80DDB:
There are various other deductions, apart from the deductions available under Section 80C, that can also be claimed to save on income tax. The expenditure made for insuring his own health or the health of his relatives also allows for deductions to save tax under the Income Tax Act. Deductions under each of these sections depending on the type of Insurance Policy, which are as follows:-
- Section 80D: Medical Insurance Premium of Self or Spouse or Children
- Section 80DD: Medical Treatment of Handicapped Dependents
- Section 80DDB: Treatment of Specified Diseases
- TAX PLANNING THROUGH HOME LOAN:
Home loans are also an effective way to save taxes. There are three ways to get income tax deduction on your home loan(s).
- Claim deduction for repayment of principal amount of home loan u/s 80C.
- Claim deduction of interest paid on home loan up to Rs. 2,00,000 under section 24.
- Benefit on interest on home loan for First Time Buyers ? Rs. 50,000 under section 80EE
- SAVE TAX THROUGH EDUCATION LOAN U/S 80E:
If a taxpayer has taken an education loan for the higher education of himself, spouse, children or the student of whom he is the legal guardian, he can claim deduction under Section 80E and save taxes. There is no maximum limit on claiming deduction. One can only claim deduction for the amount of interest paid and not the principal amount. As per the Income Tax Act Section 10(16), scholarships or awards granted to students are to be exempted from tax.
- INCOME TAX DEDUCTIONS FOR DONATIONS U/S 80G:
A donation made for charity, social or philanthropic commitments or makes a contribution towards National Relief Fund can be claimed for tax deductions u/s 80G. ?Some donations get 100% deduction while others can get up to 50%, depending on the purpose for which the donation has been made.
Only donations made in cash or cheque can be claimed for deductions. Only Rs. 10,000 tax deduction could be claimed for deductions made through cash. For claiming deductions above Rs. 10,000, the donation need to be made through cheque.
- TAX PLANNING THROUGH INSURANCE
This investment product not only provides life insurance but are also an excellent way to save on taxes. In Life lnsurance policy one needs to pay premiums every year but in case of death or at maturity, the amount received is tax free. The premium paid are liable of tax deduction under 80C of Income Tax Act.
Unit-linked Insurance Plan are plans that offers the benefit of both investment and protection under single plan. Financial investments done under this scheme are also eligible for tax deduction plus it also provides an opportunity to help your money grow.
- TAX PLANNING THROUGH LONG TERM CAPITAL GAIN
Long-term capital gains are made from the sale of long-term capital assets. LTCG is either sale of equity shares or equity-linked mutual funds that tax has been charged on sold trades. This Deduction is called the Rajiv Gandhi Equity Saving Scheme.
If you do not sell your investment in stocks or mutual funds before one year, then it would be tax deductible. However, according to the new budget, effective 1st April 2018, there will be taxes levied on your long-term capital gains. But, it?s not all bad news, existing investors have got an exemption for the capital gains they have made up to 31st Jan 2018. Exemption from paying capital gain tax can be claimed if the amount of gain from sale of property is invested in specified instruments.
- TAX PLANNING THROUGH PUBLIC PROVIDENT FUND
Public Provident Fund (PPF) Scheme also known as Pension Fund, has been a favourite savings avenue for several investors. As they are created with the goal of long term returns and the returns are tax-free.? Deposits made in provident fund are eligible for tax deduction under section 80C of Income Tax Act. PPF rate of interest is subject to change on a quarterly basis.
One can open a PPF account in an authorized post office or bank branch. While the minimum annual amount required to keep the account active is Rs 500, the maximum amount that can be deposited in a financial year is Rs 1.5 lakh. A person of any age can open a PPF account, even minors.
The investors who do not want volatility in returns and do not want to deal with volatile equities or mutual funds can invest in PPF.
- SAVE TAX THROUGH EMPLOYEES’ PROVIDENT FUND
Employees’ Provident Fund (EPF) is another avenue for salaried individual that helps save tax through involuntary savings and also accumulate tax-free corpus. 12 percent of one’s basic salary is contributed by employee each month and an equal share is contributed by the employer but only a portion (3.67 percent) goes into EPF.
The employee’s contributions qualify for tax benefit under Section 80C of the Income Tax Act, 1961, up to a limit of Rs 1.5 lakh a year but not the employer’s share. Both, employee-employer share qualifies for interest as declared by the government each year which is tax-free in nature.