In order to save a huge chunk of your income in India, you will have to pay close attention to the available tax-saving financial products. In India, if you are salaried professional, you can save tax through sections 80C, 80CCC, and 80CCD. There are various other ways through which citizens of India can claim tax deductions at the time of filling their tax return. Read on to know about the different money saving tips through which you can save tax. (how to save income tax)
Top 10 Tips for Saving Money on Tax
The following are 10 tips that should be followed to save money on tax:
Deductions under Section 80C, Section 80CCC and Section 80CCD
Citizens of India can save tax under these 3 sections. If people have invested their money in the instruments mentioned in Section 80C, Section 80CCC and Section 80CCD, then they can claim certain deductions. read from Income tax portal
Here are some of the financial tools that can help save up to Rs.1.5 lakh:
Public Provident Fund (PPF)
This saving scheme can be availed at most banks and post offices in Indian for a tenure of 15 years at 7.10% rate of interest, which is tax-free, and the interest rate changes every quarter.
Tax Saving Fixed Deposits (FD)
This FD scheme is for a tenure of 5 years and provides tax deduction of up to Rs.1.5 lakh. The rate of interest ranges between 7.00% to 8.00%, which is taxable.
National Saving Certificate (NSC)
This scheme is for a tenure of 5 years and offers a 6.80% rate of interest. The interest rate is counted towards the 80C limit of Rs.1.5 lakh automatically.
National Pension System (NPS)
For a contribution made to NPS scheme, the taxpayer can avail tax deduction up to Rs.1.5 lakh under Section 80CCD.
Employee’s Provident Fund (EPF)
Contribution of 12% of the salary made toward EPF scheme is counted towards the limit of Rs.1.5 lakh under Section 80C.
Senior Citizen Saving Scheme (SCSS)
Contribution made towards SCSS is also counted towards the limit of Rs.1.5 lakh. The SCSS is available to citizens over 60 years for 5 years tenure at a rate of interest 7.60%, which is taxable.
Equity-Linked Saving Scheme (ELSS) Funds
Mutual fund investment of minimum 80% of the asset is made towards equity that comes with 3 years lock-in period and subject to Long Term Capital Gain Tax at 10%. This scheme offers an exemption of above Rs.1 lakh.
LIC Premiums
Insurance polies including endowment policies, ULIP, and term insurances offers tax deductions of up to Rs.1.5 lakh, provided the insurance covers 10 times the annual premium.
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Sukanya Samriddhi Yojana
Tax deduction under this scheme can be availed by the parents of a girl child below 10 years of age. The Sukanya Samriddhi Yojana tenure is 21 years or until the girls get married after 18 years and offers a rate of interest of 7.60% (taxable).
Repayment of home loan
Home loan repayment of the principal amount also provides tax deduction up to Rs.1.5 lakh per annum.
Tuition fees:
Tax deduction of up to Rs.1.5 lakh can be availed by the taxpayer on tuition fees payment for children.
Medical Expenses
Under Section 80D, a salaried employee can claim tax deduction against medical insurance. An individual can claim Rs.25,000 against medical insurance taken to cover spouse and dependent children and another Rs.25,000 for parents. An individual can claim up to Rs.50,000 against medical insurance that is taken to cover their parents who are senior citizens.
Home Loan
A tax deduction can be claimed on the interest payable on house loan under Section 24 of Income Tax Act. A tax deduction can be claimed up to Rs.2 lakh but there is no upper limit in case the house is given out for rent.
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Education Loan
People can save tax by opting for an education loan for higher education for themselves or their children or spouse, etc. Section 80E of the Income Tax Act allows people to claim deduction on the amount they have spent for paying the loan interest. There is no maximum limit on the amount of deductions they can claim.
Shares and Mutual Funds
People can save tax if they invest money in shares and mutual funds. Under Section 80CCG of the Income Tax Act, citizens who earn below Rs.12 Lakhs annually are allowed an additional deduction if they invest money in shares of certain companies and some specified mutual funds. The deductions are provided under Rajiv Gandhi Equity Savings Scheme and is available only to first time investors.
Long Term Capital Gains
Taxpayers can save money on tax through long term capital gains, provided they receive this gain amount by selling any long-term capital asset and then investing it in specific instruments. A long-term capital asset would be any asset that the taxpayer has owned for over a period of 3 years.
Sale of Equity Shares
In order to motivate people to invest in equity shares and mutual funds, the Indian Government has exempted tax on any long term gains that people earn through the sale of equity shares. The tax is exempted only if people hold such shares for more than 1 year.
Donations
By donating money for social or charity purposes or by making contributions to the National Relief Fund, citizens of India can save money on tax by claiming deductions on the amount they spent on donations. An individual can claim 50% of the donated amount to the NGOs and 10% of the adjusted total income. The NGOs must provide an 80G certificate so that the taxpayer can claim tax deduction under Section 80G of the Income Tax Act. Individuals can also claim tax deduction if donation is made towards any political parties, and it meets certain conditions under Section 80GGC.
House Rent Allowance
In India, employees are allowed House Rent Allowance (HRA), which is deducted from their income. HRA helps people save money on taxes as people can claim it under section 80GG. If the total rent of individuals is more than Rs.1 Lakh in a year, they will have to provide proof such as House Owner’ PAN Card, Lease Agreement, etc. Also, people cannot claim the full HRA amount given by their employer, but the lowest of the following:
- Actual HRA provided by the employer.
- 50% of basic salary + DA (if the employee is in Mumbai, Delhi, Chennai or Kolkata).
- 40% of basic salary + DA (if the employee is in another city).
- Actual House rent minus 10% of the basic salary + DA.
LTA (Leave Travel Allowance)
If taxpayers get LTA from their employers, then they will be entitled to tax-free LTA. People can claim it 2 times in a period of 4 years. To claim it, they have to travel anywhere within India during their leave period and the trip can take with spouse, children, and parents.
These are some of the popular ways using which people can save money on their taxes. If taxpayers plan their income, investments, expenses and tax well, they may end up saving a lot of money. It is advised not to use illegal ways to save tax.
For example – If people try to save money by not paying taxes, the amount they save will be considered as unaccounted money or black money, which if caught can result in a lot of problems.
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Some Other Options that Can Help you Save Money on Tax
The following is the list of other alternative options that can be availed by the taxpayer to claim tax deductions:
Gratuity: This is the retirement benefit provided by the employer to the employee on completion of 5 years of their service in the organization. The gratuity amount is paid upon resignation from service or retirement and is exempted from tax.
Meal coupons: Meal coupons such as Sodexo or Zeta are provided from the employers to the employees which is exempted from tax up to a limit of Rs.2,600 per month.
Internet or phone related expenses: Some employers reimburse the internet or phone related expenses that help the employee in saving money on tax payment.
Car leased by the employer: An individual can save money on tax by availing themselves of car lease policy offered by the employer.
Leave encashment: Leave encashment is allowed by some employer which allows employees to encash some of their remaining leaves. This encashment of leaves allows employees to claim tax deductions.
Exemption under Section 89(1): Salary received in advance or arrears is exempted from tax under Section 89(1).
Exemption on receiving compensation on opting for voluntary retirement: Any compensation received by the employee on opting for voluntary retirement is exempted from tax under Section 10(10C), provided the compensation meets the required criteria under rule 2BA. To claim tax deduction under this section, the compensation received should be below Rs.5 lakh.
FAQs on Save Income Tax on Salary
Can I submit an income tax return (ITR) form online?
Yes, you can submit duly filled income tax return (ITR) form by visiting the official website of the Income Tax Department of India.
Can I claim tax deduction if my income is below Rs.5 lakh?
Yes, you can claim tax deduction even if your income is below Rs.5 lakh or if the income lying within the slab of Rs.2.5 lakh to Rs.5 lakh. An individual with income below Rs.5 lakh can claim tax deduction under Section 87(A).
Is the interest on savings accounts tax-free?
Interest earned from savings account is exempt from tax payment under Section 80 TTA of Income Tax Act, provided the total interest earned is less than Rs.10,000.
What are the benefits of Voluntary Provident Fund (VPF)?
VPF is an effective investment option that allows a high contribution to amount apart from EPF which is 12% of the basic salary. VPF not only increases the retirement corpus but also provides tax benefit during investment, accumulation, and withdrawal.
Can I withdraw VPF any time?
The Voluntary Provident Fund can be withdrawn anytime but not before the lock-in period of 5 years. An individual may be liable to pay tax if VPF amount is withdrawn before 5 years.
Are allowances provided by the employer taxable?
Yes, allowances provided by the employer are considered as a part of salary by the Income Tax Department and hence is taxable. There are some allowances that provide tax benefits under different sections of the Income Tax Act.
I have been employed by two employers in the same year. Do I need to pay tax on my won, in case TDS has not been deducted?
You will have to pay tax on your own, which is also known as Self Assessment Tax, in case you have taxable income and TDS not been deducted by any of your employer.
