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.
If you feel that you have been paying a large part of your income on taxes, then it is very likely that you have not planned your taxes well. There are various legal ways using which you can save money on taxes. The Income Tax Act of India allows the citizens to save taxes by way of deductions. People can claim the deductions at the time of filing their tax return.
Here are some tips that will help you in saving money on taxes:
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. Some of the popular instruments which people invest in are PPF Accounts, Pension Plans, Life Insurance Policy, NSC (National Savings Certificate, 5 Year Tax Saving Fixed Deposit, etc. The maximum deduction that citizens can claim under one or section or all 3 sections combined is Rs.1,50,000. People who invest in National Pension Scheme can claim an additional deduction of Rs.50,000 under Section 80CCD.
Taxpayers can save tax on the amount they have spent on medical treatments. If people provide their medical bills, then their medical expenses becomes tax free. Also, employers provide Medical Allowance to all the employees. The maximum amount people can claim using medical bills in a year is Rs.15,000. The Income Tax Act allows deductions under Section 80D, Section 80DD and Section 80DDB on income that has been spent by the taxpayers for insuring their own health or their relative’s health. The deduction amount may vary for each section and depends on the type of insurance policy the taxpayer has purchased.
Most people are advised to save tax by taking a home loan because the deductions can be claimed under 3 sections, which can result in huge savings. If people take a home loan, then they are allowed under Section 80C of the Income Tax Act to claim deductions on the repayment of the principal loan amount. Section 24 allows people to claim deduction on the interest they have paid on their home loans. The maximum deduction of Rs.2,00,000 is allowed in certain cases, while there are cases with no maximum limit on the deduction that can be claimed on the amount spent on paying the home loan interest.
Recommended : How to Claim Tax Benefits on Home Loans
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. Section 80E only allows individual taxpayers to claim deductions.
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 their 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.
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. They can claim such deductions under Section 80G of the Income Tax Act. The organization which the taxpayers can donate to is listed by the Ministry of Finance and if the deductions will be allowed or not, it depends on the purpose for which the money has been donated. People cannot claim deductions for donations that have been made in kind. Taxpayers can claim deductions of up to Rs.10,000 for donations made using cash and for claim any amount that exceeds Rs.10,000, they have to donate using cheques.
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 the deductions section. 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 plus DA (if the employee is in Mumbai, Delhi, Chennai or Kolkata). 40% of basic salary plus DA (if the employee is in another city).
Actual House rent minus 10% of the basic salary plus 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.
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.