How to Save Income Tax?
Every individual pay tax on income and expenses. When you pay tax on your income it is called income tax. Similarly, when you pay taxes on your expenses, then it is called indirect tax as per the Income-tax Act, 1961. Though it is difficult to avoid taxes, it is not impossible. There is a series of routes in which we can save income tax legitimately. In this article, let us understand how to save Income Tax in India, How to save income tax on salary income and many other aspects related to tax saving plans.
Often Citizens lookout to find ways to save income tax. No single individual dares to miss an opportunity to save income tax. However, the methods used by individuals may be different based on their belief system on incomes, expenses, savings, and investments. Sometimes, people prefer to stick to their traditional tax-saving plans instead of exploring new and innovative financial instruments. Hardly people understand the new and best methods for tax saving requirements. Therefore, this article is developed to help those who are looking for better tax saving plans. If you are thinking about how to save income tax in India, read through this article to acquire new insights on tax saving plans.
How to Save Income Tax in India?
Let us understand some of the most important Sections of the Indian Income Tax Act that permits tax deductions.
Section 80C is one of the most popular Income tax section that permits taxpayers to claim deductions. Any modification in Section 80C of the Income Tax Act 1961 would directly impact taxpayers. That is the reason the taxpayers keenly watch the Television during budget announcements every year. The section plays a key role in helping taxpayers to reduce their tax liability and save on tax payment. Section 80C enables taxpayers to reduce their tax liability by Rs 1,50,000 on their Gross Total Income. Some of the eligible investments under Section 80C are:
- Public Provident Fund
- Pension Fund
- National Saving Certificate
- Unit Linked Insurance Plans (ULIPs)
- Health Insurance Plans
- Life Insurance
- National Saving Certificate
- Sukanya Samridhi Yojana
- Provident fund
Section 80CCD covers the deduction of tax under the category of pension account. It covers some of the prominent pension funds like the National Pension Scheme, Atal Pension Yojana. The contributions made by the employers towards the pension fund covered under this category. This is notified by the Central Government of India.
Under Section, 80D provides Income Tax deduction related to medical insurance premium paid for self and family members. The exemption limits are shown below:
|Individuals Covered||Total Deduction (INR)|
|Self & Family||25000|
|Self, Family, and Parents||55000|
|Self, Family + Senior Citizen Parents||60000|
|Self (Senior Citizen) + Senior Citizen Parents||65000|
Section 80EE is popular among first time home buyers since they enjoy tax benefit that is equivalent to the interest on the home loan. The maximum permissible limit is Rs 50000 during the financial year. This deduction is in addition to Section 24 and Section 80C. Section 80EE was introduced in 2013-14 to support home buyers for up to Rs 1,00,000.
When a taxpayer makes some contributions for charitable institutions and relief funds, they are entitled to receive certain tax exemptions under section 80G of the Income Tax Act. However, the charitable institution must be registered under appropriate Indian laws. This tax exemption is not just restricted to individual taxpayers, any partnership firm, limited liability companies, and Joint Stock Companies also can enjoy this benefit under the Indian tax laws. Some of the donations eligible for a 100 % deduction without any qualifying limit.
- Prime Minister’s National Relief Fund
- An approved university/educational institution of National eminence
- National Sports Fund
- National Children’s Fund
- Chief Minister’s Earthquake Relief Fund, Maharashtra
- Swachh Bharat Kosh
- National Illness Assistance Fund
- Fund for Technology Development and Application
- National Foundation for Communal Harmony
- Prime Minister’s Armenia Earthquake Relief Fund
- Clean Ganga Fund
- National Fund for Control of Drug Abuse
- Fund set up by a State Government for the medical relief to the poor
- Any fund set up by the State Government of Gujarat exclusively for providing relief to the victims of the earthquake in Gujarat
- National Defence Fund set up by the Central Government
- National Cultural Fund
Section 80GG has been introduced to provide relief for those who do not receive house rent allowance buy paying rent for their accommodation. Those individuals can claim a deduction for rent paid even he or she does not get a rent allowance. The individuals who prefer to get this deduction should be self-employed or salaried professionals. Form no 10BA should be filled to get this tax deduction. In simpler words, if Mr Ramesh, in his income tax return, claims a deduction in respect of the self-occupied property and pays rent for a place in which he ordinarily resides but not of his own, he shall not be able to claim deduction under 80GG section. The amount of deduction shall be the least of the following:
- Actual Rent paid minus 10 per cent of the adjusted total income.
- 5,000/- per month.
- 25% of Adjusted Total Income.
Section 80 TTA applies to individuals and Hindu Undivided Families. This section provides an income tax exemption on interest income up to 10,000. This deduction is available on the following interest incomes.
- From a savings account with a bank
- From a savings account with a co-operative society carrying on the business of banking
- From a savings account with a post office
- Interest from fixed deposits
- Interest from recurring deposits
- Any other time deposits
- Cooperative society
- Post office
Section 80DD provides a tax benefit for the individuals who are taking care of disabled dependents. This tax law applies to individuals and Hindu Undivided Families (HUF). Section 80 DD benefits can be availed subject to the considerations discussed below:
- Deductions can be asserted on insurance premiums with certain insurers as well as on expenses incurred on maintenance of a disabled dependent at home.
- The deduction allowed up to Rs.75,000 for taking care of disabled persons with 40% or more of one or more disabilities.
- The deduction allowed up to Rs.1.25 lakhs per annum for taking care of disabled persons with 80% or more of one or more disabilities.
- Dependents imply spouse, children, siblings, or parents of an individual or any member of the family in a HUF.
- Disabilities covered under the act include leprosy-cured, locomotor disability, mental retardation, hearing impairment, and low vision.
Section 80DDB is related to the tax exemption on the medical exemptions incurred for specified diseases. This tax law applies to individuals and Hindu Undivided Families (HUF).
Below mentioned documents are necessary for claiming tax exemption under section 80DDB:
- In the case of neurological diseases, a prescription from a Neurologist having a Doctor of Medicine in Neurology or any equivalent degree is required.
- In the case of Malignant Cancer, a prescription by an Oncologist having a Doctor of Medicine in oncology or any equivalent degree is required.
- In the case of AIDS, a prescription by any specialist having post graduate degree in general or internal medicine or any equivalent degree is required.
- In case of Chronic Renal failure, a prescription by a Nephrologist having a Doctor of Medicine (D.M.) degree in Nephrology or a Urologist having a Master of Chirurgiae (M.Ch.) degree in Urology or any equivalent degree is required
- In case of the last ailment Haematological disorders, a specialist having a Doctor of Medicine degree in Haematology or any equivalent degree is required
Section 80U of the Indian Income Tax Act, 1961 provides tax exemption for individuals and the members of HUF for the disabilities listed below:
- Low Vision
- Hearing Impairment
- Cerebral Palsy
- Locomotor Disability
- Leprosy (cured)
- Mental Retardation
- Mental Illness
Section 80GGC under the Income Tax Act, 1961 provides tax exemption for donations made by any individual or member of the HUF. It is interesting to note that there is no upper limit for exemption under section 80GGC. However, certain conditions are applicable as given below:
- Only individual taxpayers can claim tax benefits.
- Donations should not be made in cash
- Donations must be made to a registered political party under section 29A of Representation of People Act (RPA)
I hope you are clear about how to save income tax in India and some of the most important tax exemptions available under Indian Income Tax Act 1961. I hope you enjoyed it. Please feel free to share your thoughts in the comment section.
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