How to save Income Tax in India
There are many ways of saving tax under the Income Tax Act, 1961. It includes tax-saving mutual funds, NPS insurance premiums, medical insurance, and many others.
Various methods to save tax are as follows:
Invest in those which are subjected to a cap of Rs 1.5 Lakh
- Tax saver FDs: You can get the tax deduction of up to Rs 1.5 Lakh under 5 years tax saver FDs. They carry a fixed rate of interest currently between 7-8%.
- PPF: Public Provident Fund is a government established saving scheme with a tenure of 15 years, available at most of the banks and post offices in India. Its rate changes every quarter but is currently 8%. The interest on PPF is tax-free.
- ELSS Funds: They are the Mutual fund that invests a minimum of 80% of their assets in equity. Lock- in period of this investment is 3 years. The return on ELSS funds is subjected Long term Capital Gains Tax at 10% with over and above exemption limit of Rs 1 Lakh.
- NSC (National Saving Certificate): National Saving certificate has a tenure of 5 years and the interest rate is also fixed. Current interest rate is 8%. The interest on NSC is automatically counted towards Rs 1.5 Lakh as per the 80C limit and is tax-deductible if no other investment is using up this limit.
- Life Insurance Premium: Premium including for different insurance policies including ULIPs, Term Insurance and endowment polices are tax-deductible up to Rs 1.5 lakh. Insurance cover must be at least 10 times the annual premium.
- National Pension system: This deduction is available under Section 80CCD up to Rs 1.5 Lakh for contribution to NPS. For this, Rs 50,000 deduction available under Section 80CCD(1B).
- Home Loan Repayment: Repayment of principal amount on a home loan is tax deductible up to Rs 1.5 Lakh per annum.
- Payment of Tuition fees: Payment of tuition fees for your children is tax deductible up to Rs 1.5 Lakh per annum.
- EPF: Under the EPF Act, 12% of pay of the employees in the organized sector is deducted towards the Employees Provident Fund. This deduction count towards the Rs 1.5 Lakh limit under Section 80C.
- Senior citizens Saving Scheme: Contribution to SCSS is tax deductible up to Rs 1.5 Lakh. SCSS has a tenure of 5 years and is available to those above 60. The rate of Senior Citizen saving scheme is higher than prevailing FD rates and is currently 8.7%.
- Sukanya Samriddhi Yojana: Parents of a girl child below the age of 10 can get this deduction. This account has a tenure of 21 years or until the girl marries after turning 18. It has an interest above prevailing rates (currently 8.5%) and the interest is tax-free.
Contribute to National Pension System
This deduction under Section 80CCD(1B) up to Rs 50,000 is only available for contributions to the NPS. The NPS allows you to make investment in equity and debt pension funds and build a retirement corpus. You can withdraw it at the age of 60 years.
Pay Health Insurance Premiums
A deduction up to Rs 25,000 is available for health insurance premiums under Section 80D. This is over and above the deductions listed above. For senior citizens, this limit is increased to Rs 50,000. A person contributing health insurance for himself and senior citizen parents can avail of the combined deduction up to Rs 75,000 per annum.
Get a deduction on your rent
You can claim a tax deduction on your House Rent Allowance (HRA) if you get HRA. There is no upper limit for this, but there is a set of rules on that cap for the maximum HRA deduction. If you are not getting HRA but pay rent, you can claim a deduction under Section 80GG up to Rs 60,000 per annum.
Get a deduction on interest on your Home Loan
If you have a home loan, the interest payable on it is tax-deductible under Section 24 of the Income Tax Act up to Rs 2 lakh per annum. If you give out the house on rent, there is no upper limit. However, the total loss that can be claimed on the broader head of income from house property is capped at Rs 2 lakh.
Save some money in your saving account
This is one of the easiest deductions under the Income Tax Act which an individual can claim. Interest earned on savings accounts is tax-free up to Rs 10,000 per year under Section 80TTA. This limit is Rs 50,000 for senior citizens for both FD and savings account interest under Section 80TTB.
Contribute to charity
One can get a maximum tax deduction on charitable donations. There is no upper limit but there are different rules which restrict the tax deduction amount on various charitable contributions.
For donations to NGOs: Limit is 50% of the donated amount and up to 10% of your adjusted total income. NGOs under this section are required to have an 80G certificate for you to be able to claim this deduction.
Note : It is applicable on with those cases when you are going to file Income Tax under existing Income Tax slabs of the previous financial year.
