How to save money on Income Tax?

by Vanshika Gaba

Every taxpayer tries to save their hard-earned money on income tax, tax management is indeed important and must be looked upon. Even the government has provided certain deductions to taxpayers.

Most people are well aware of deduction under section-80C, however many other deductions are available to reduce their liability for the same.

Section 80C: Income tax deductions on investment

Section 80C is an income tax deduction that can help one to save money on your income tax. It covers specific investing and payment choices that can help you save up to Rs. 1.5 lakh on your taxable income. By this section the deduction is available to individuals and HUF only, no other corporate entity can avail of this deduction.

1. Employees’ Provident Fund (EPF)

2. Public Provident Fund (PPF)

3. Equity-Linked Savings Scheme (ELSS) mutual funds

4. National Pension System (NPS)

5. Repayment of the principal amount of home loan

6. Children’s school fees

And so on are some of the most commonly used investment/expenditure avenues under Section 80C.

Section 80CCD: Income tax deductions on pension (NPS)

This section provides deduction to people who contribute to NPS. Persons who contribute any amount to their NPS account throughout the financial year are eligible for a deduction from their gross income.

It can be up to 10% of their basic pay for salaried persons and 20% of their gross total income for self-employed individuals.

The NPS allows you to invest in equity and debt pension funds and build a retirement corpus. You can withdraw it at age 60. The contribution made by the employees under section 80CCD (1) the following are the maximum deductions that can be made:

  • 10% of your annual salary (in case taxpayer is employee);
  • 20% of total gross revenue (in case of self-employed);
  • Rs 1.5 lakh (maximum permitted under section 80C).

Section 80D: Save income tax by health insurance

An individual or whole family at large can avail of this scheme, It was introduced to encourage health insurance among people by giving them tax deductions.

Self and whole Family (All members must be below 60 yrs)  Rs. 25,000
For yourself, your Family, and Parents (members below 60 yrs)  Rs. 25,000 + Rs. 25,000 = Rs. 50,000
For individual and their family ( below 60 yrs) + Senior Citizen Parents  Rs. 25,000 + Rs. 50,000 = Rs. 75,000
For Self and Family (1 member above 60 yrs) + Senior Citizen Parents  Rs. 50,000 + Rs. 50,000 = Rs.1,00,000

Section 80E: Repayment of education loan

Students borrow to pursue their high educational goals, this has been a popular practice nowadays because of low interest rates. Considering highly intellectual human resources as the future of the nation, the income tax department provides tax deductions on the same.

The parent or student whoever repays the loan gets the tax advantage. This deduction is available for an interest payment period of 8 yrs (whichever is earlier).

Section 80EE: Income tax deduction on home loan for first time owners

This income tax deduction is only for the first-time owners, one must not have any property sanctioned on their name to date to take benefit of this section. First-time homeowners can get up to Rs. 50,000 tax deduction through this section.

There is one more condition to satisfy to avail this deduction includes, the value of the house must be less than Rs. 50 lakh and the loan is for Rs. 35 lakh or below. The benefit of this section applies only to the interest factors of the home loan.

Section 24: Tax deduction on home loan and rental income

The income tax value of rental income gets deducted by the virtue of this section, the standard deduction offered is 30% of the value arrived after deducting taxes (municipal tax) from the rent. If the rental income includes furniture then it is named composite rent.

People who have a home loan can avail of these income tax deductions through this section on the interest component of their home loan. The maximum tax deduction on interest payment of a home loan introduced for a self-occupied property is Rs. 2 lakhs.

In case the owner is not living in the property due to business purposes the amount of tax deduction is limited to Rs. 2 lakhs.

Section 80GG: Income tax deduction on HRA

Every individual who belongs to a salaried class can avail of this section, notwithstanding the HRA being received. Even individuals who are self-employed can consider this section for tax reduction towards the rent paid up to Rs. 60,000 in a financial year.

This method to save income tax can not be availed if the individual is a homeowner, irrespective of the house being in the same or another city.

Section 80TTA: Tax saving on interest earned from saving account

This section provides relief to individuals and HUF, they can claim a tax deduction on the interest earned from savings under Section 80TTA within limits. One can claim a deduction of a maximum of Rs. 10,000. This section does not apply to senior citizens.

Later in 2018, section 80TTB was introduced for the senior citizens, it provides deduction to them up to  Rs.50,000 or an amount prescribed.

Section 80DDB: Tax deduction on medical expenses

  • For self and family (below 60 yrs):

A resident person or a HUF can claim a deduction of up to Rs. 40,000. It is offered for treating certain medical conditions and it’s free of charge. For a HUF, such a deduction is permitted for medical expenditures spent for any of the HUF members who suffer from these listed conditions.

  • For senior and super senior citizens:

Individual or HUF taxpayers can claim a deduction of up to Rs. 1 lakh if the individual on whose behalf such costs are made is a senior citizen. A senior citizen and a super senior citizen could claim a deduction of Rs.60,000 and Rs. 80,000, respectively, until FY 2017-18. Unlike before, all elderly persons (including super senior citizens) are now eligible for a deduction of up to Rs. 1 lakh.

  • For reimbursement claims:

Any reimbursement of medical expenditures by an insurance or employer is deducted from the amount of deduction the taxpayer is entitled to under this section.

*Also keep in mind that to claim such a deduction, you must have a prescription for such medical treatment from a competent physician.*

Section 80GG: Income tax deduction by donation and charity

You can deduct charitable contributions from your taxes. There is no upper limit, but several laws limit the number of charitable contributions that can be deducted from your taxes. The maximum for most donations to NGOs is 50% of the amount contributed plus up to 10% of your adjusted total income.

NGOs under this section must hold an 80G certificate, to avail of this deduction. Any donations made in cash that exceed Rs. 2,000 cannot be allowed as a deduction. The donations must be above Rs. 2000 and can be in other modes than cash to qualify for 80G deduction.

Section 80GGB: Tax saving by company contribution

The beneficiary of this section includes a company only, the company that has donated to any political party or electoral fund. The Company is liable to claim a 100% deduction on the amount donated to a political party or electoral fund.  

Section 80GGC: Income tax deduction by contributing to political parties

Any amount can be given to a political party or electoral trust by an individual taxpayer, Companies, municipal governments, or artificial persons. People who are entirely or partially supported by the government are not eligible for this section.

This deduction is only available if you pay by a method other than cash. The donations can be made through wired or bank transfers only.

Section 80RRB: Tax saving by royalty of a patent

A certificate duly signed by the relevant authority in the prescribed manner must be provided by the taxpayer to avail benefits of this section. The taxpayer must be a single patentee who lives in India.

Royalty payments are eligible for a deduction of up to Rs. 3 lakhs. This is the amount that can be deducted to the fullest extent possible. Only that amount is eligible for deduction if the actual royalty received is less than Rs.3 lakhs.

FAQ

Can I save tax more than Rs. 1.5 lakh?

Yes, one can save tax more than Rs. 1.5 lakh by using section 80C and 80CCD. You will get a deduction of Rs. 1.5 lakh by section 80C and other Rs. 50,000 by section 80CCD in a financial year.

How much should I invest to save tax?

You can start investing in pension funds like the national pension scheme. In this, you can begin your investment by 10% of your salary and can save up to Rs. 50,000 and more. Also, you can invest in section 80D to save up to Rs. 1 lakh, in this, you can buy health care insurance for yourself, your family, or your parents.

How can a salaried person save tax?

·   House Rent Allowance: Salaried people who reside in a leased home or apartment can claim HRA (housing rent allowance) to reduce their tax bill. This can be exempt from taxes in part or whole.

·   Leave Travel Allowance: Under the LTA, salaried employees can take a trip inside India for free. The exemption only applies to the shortest distance traveled during a trip. This benefit is only available for trips done with your spouse, children, and parents; it cannot be claimed for trips with other relatives.
This exemption only applies to real expenses, therefore you won’t be able to claim it unless you really go on the trip and spend these costs. To claim this exemption, one has to submit the bills to their employer.

·   Standard Deduction: This deduction has taken the place of the transportation and medical allowances. The employee may now deduct a flat Rs. 50,000 from their entire salary, lowering their tax bill.

·   Professional Tax:
The highest amount of professional tax a state may charge Rs. 2,500. Employers often deduct it and deposit it with the state government. Professional tax might be deducted from your pay income on your income tax return.

How to reduce taxable income in India?

The person can invest in government funds or pension schemes. The person can invest in medical insurance for self, family, or parents. The person can do charity, donate to NGO, any political party, or electoral fund.

How can I save tax without investment?

Below mentioned are 3 ways to save tax without investing:
·         Take a home loan and save tax.
·         Deduction for medical expenses and get maximum benefits on income tax.
·         Pay rent and avail HRA benefits.

How can I save tax in India other than 80C?

o   Section 80D:
Health insurance premiums of up to Rs. 25,000 are available for self-insured individuals, spouses, and dependent children. For parents under the age of 60, an additional deduction of Rs. 25,000 is available.
 
o   Section 80DD:
Expenses for a disabled and dependent relative’s medical care. For a handicap of 40-80 percent, the deduction can be up to Rs.75 thousand, and for a disability of more than 80 percent, it may be up to Rs. 1.25 lakh. Money given to a special plan for the care of such a relative is also included.
 
o   Section 80DDB:
This section allows you to deduct up to Rs. 40,000 in medical expenses for yourself or a dependent family. The deduction limit for elderly and super elderly persons is Rs. 1,000,000.
 
o   Section 80TTA:
One of the tax-saving choices is to collect interest on a savings account. The highest amount that can be deducted is Rs. 10,000. Any bank, post office, or cooperative society can be used to open an account.
 
o   Section 80GG:
Salaried people who reside in a leased home or apartment can claim HRA (housing rent allowance) to reduce their tax bill. This can be exempt from taxes in part or whole.
 
o   Section 80E:
Considering highly intellectual human resources as the future of the nation, the income tax department provides tax deductions on the same. The parent or student who repays the loan gets the tax advantage. This deduction is available for an interest payment period of 8 yrs (whichever is earlier).
 
o   Section 80EE:
Taking a home loan is definitely a great option to save tax. This section can help first-time homeowners.
 
o   Section 80G:
Donations to NGOs are tax-deductible up to 50% or 100%. The National Defense Fund, the Prime Minister’s National Relief Fund, and others will also be considered.
 
o   Section 80GGB:
This section is available for a company, in this a company can contribute to a political party can be tax-deductible up to 100% under this section.

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