Before alighting on some of the best ways to save tax, it is important to know if at all tax can be legally saved by a taxpayer. It is important to now that the Income Tax Act of India does allow a salaried person to acquire some deductions on the total amount of tax he or she must shell out.
However, it is equally important to know that any salaried individual must ensure a proper tax planning throughout the year in order to avail of the deductions.
5 Ways to Save Tax Legally
In order to save tax after having charted a thorough tax plan throughout the year, the following are the five best ways to do it:
Section 80C, Section 80CCC, Section 80CCD
- In order to save tax, one must be aware of the provisions available under Section 80C, Section 80CCD, and Section 80CCC of the Income Tax Act of India.
- The three sections of the Income Tax Act permit a salaried individual to take up the habit of essential saving by allowing certain investment linked deductions.
- However, it must be remembered that the amount of investments must be according to the ones specified by the sections of the Act.
- It is necessary to note that the maximum deduction allowed under the three sections is Rs. 150000.
- Some of the more essential investment choices covered under the sections include public provident fund accounts, five-year tax saving fixed deposit, life insurance policy, equity oriented mutual fund and national savings certificate.
- Additionally, it is important to note that an individual may claim an additional deduction of Rs. 50000 by investing in the National Pension Scheme.
The Benefit of Home Loan
- In order to get hold of the best ways to save tax, it is vital to decipher the importance of home loans.
- If a salaried person has taken a particular amount of home loan, he or she is legally entitled to claim tax deductions under the Income Tax Act of India.
- One may, in that case, claim the deduction for settlement of the principal sum along with the home loan interest.
- It must be noted that deduction of the principal amount is legalized under Section 80C. As far as the home loan interest is concerned, it is legalized under Section 24.
- It is important to note that the maximum amount of allowed deduction under Section 80C is Rs. 150000 whereas the maximum amount of allowed deduction under Section 24 is Rs. 200000.
The Benefit of Section 80D
- In order to get hold of the best ways to save tax, it is vital to decipher the importance of the provisions of Section 80D.
- It is well acknowledged that a health insurance plan is meant to wall an individual against any medical adversity. All the treatment and hospitalization expense are born by the insurer itself.
- Additionally, it is important to note that apart from the essential hospitalization charges, the insurer may also cover the ambulance bills, domiciliary costs and pre and post hospitalization costs.
- Keeping the above parameters in mind, it is important to recognize the fact that Section 80D of the Income Tax Act of India allows a salaried individual to claim deductions if the concerned tax payer has disbursed premium for his or her health insurance, or that of his or her family members’.
The Benefit of House Rent
- In order to get hold of the best ways to save tax, it is vital to decipher the importance of the aspect of house rent.
- If a salaried individual is sojourning in a rented house and is receiving house rent allowance, he or she has the right to claim deductions of tax under Section 10(13 A) of the Income Tax Act of India.
- It must be noted that deduction of tax will typically include the amount of the definite house rent allowance received from the employer, payment of the original rent in excess of ten percent of the basic salary and fifty percent of the basic salary if the individual is staying in a metro and forty percent of the basic salary if the individual is staying in a non-metro.
The Importance of Education Loan
- In order to get hold of the best ways to save tax, it is vital to decipher the importance of the education loan.
- Under section 80E of the Income Tax Act of India, an individual may claim tax deduction on an education loan for higher studies.
- However, in order to claim deduction, it is important to note that only repayment of interest on the education loan can be claimed as deduction.
- One of the most striking aspects of the education loan is that there is no limit to claim tax deduction.