Paying taxes on hard-earned income is challenging at the time of the ending of the financial year for every one of us. Our income gets taxed in a few different ways: at the state and central government levels, by Medicare, and social security, to give some examples.
Indeed, even there is a ton of hustle-bustle at the hour of submitting different insurance forms and rent receipts. In any case, on the off chance that you need, you can save yourself from superfluous financial stress and can save a good amount on taxes.
In spite of the fact that taxes are hard to keep away from, there are various strategies to help ward them off. To get clear experiences into tax sparing, you have to comprehend tax slabs as well.
On the off chance that you are additionally searching for tax-saving alternatives, at that point you can invest your finance and can utilize it as a sparing instrument later on too. Moreover, you can likewise utilize different allowances to save taxes.
Here are the 21 ways that are generally applicable to the majority of individuals to save income tax in India. Let’s begin!
1. Home Loan
You can save tax in case you plan your home loan carefully as per section 80C. The limit for the Principal amount is Rs. 1.5 lakhs according to section 80C and for the interest amount the cutoff is Rs. 2 lakhs according to section 24.
2. Income of Saving account interest
Interest earned on a saving account is exempt for taxation purposes up to Rs. 10,000 under section 80TTA. Only interest earned above Rs. 10,000 will be taxable. The limit extends up to Rs. 50,000 if you are a senior citizen.
3. Amount received from Life Insurance Policy
Cash from a life insurance policy can be gotten on maturity or on getting the claim amount. The amount got is exempt from tax if the premium doesn’t surpass 20% of the sum insured. This applies to policies that are before 1 April 2012. In the case of policies after 1 April 2012, the rate drops to 15%.
4. Education Scholarship
Scholarship for education is tax-free under section 10(16). There are no limits in such a case as the whole amount received under public or private scholarship is tax-free.
5. Income received as a dividend on shares or equity mutual funds
The amount received as a dividend on shares or equity mutual funds is tax-free. (After 1 April 2020, 10% TDS is deducted under the finance act, 2020. Because of the Covid-19 pandemic, 7.5 % TDS will be deducted until March 31, 2021.)
6. Receipt through Inheritance
Assets received through inheritance in form of a will are not taxable in India. Therefore, the amount you receive in inheritance is tax-free. However, the income that you generate through inheritance will be taxable.
7. Amount through Provident Fund
The amount received through the Employees’ Provident Fund can become tax-free. Check out the tax deduction and calculation of the Employees’ Provident Fund.
8. Education Loan
Under Section 80E, the interest paid against an education loan is not taxable. There is no limit specified for such a loan.
9. Premium of Health Insurance
Each individual or HUF can claim a deduction under Section 80D for their medical insurance which is taken from their total income at whatever year. Not exclusively would you be able to take benefit by purchasing a health plan for yourself yet in addition you can exploit buying the policy to cover your spouse, or your dependent children or parent? Best of all, it is well beyond the deductions claimed under section 80C/CCC/CCD.
All the contributions made to certain relief funds or charitable institutions can be claimed as a deduction under Section 80G of the Income Tax Act. All donations, be that as it may, are not qualified for deductions under section 80G. Just donations made to recommended funds qualify as a deduction. This deduction can be claimed by any taxpayer – individuals, company, firm, or some other person.
11. Donation to Political Party
To encourage higher contributions towards political parties, there is a provision of exemption from taxation under Sec 80 GGB. This section of the Income Tax Act 1961 mostly manages donations and contributions made by Indian Companies towards political parties or discretionary trusts.
12. Travel Allowance
So as to claim exemption of transport allowance conceded to an employee of the non-transport business for driving from residence to office, employees need not outfit any proof of consumption and further, the exemption limit is fixed and accessible independent of actual use. Nonetheless, the main condition that should be satisfied is that the employee ought not to have just been furnished with office transport/movement by the employer for such reason.
13. House Rent Allowance
The deduction available is the least of the following amounts:
- Actually, HRA received
- half (50%) of [basic salary + DA] for those living in metro cities (40% for non-metros); or
- Real lease paid less than 10% of basic salary + DA
14. Money Received from Gratuity
After the amendment, the maximum exemption allowed for gratuity is Rs. 20 lakh. Before the amendment, it was 10 lakh.
15. Amount Received through Voluntary Retirement Scheme
Exemption of Rs. 5 lakh is only a one-time exemption. However, employees can receive compensation on voluntary retirement schemes from different employers but can claim once in a lifetime.
16. Public Provident Fund
PPF are long-term investments from the government of India. Deposits made in PPF accounts become eligible for tax deductions under Section 80C.
17. National Saving Certificate
As a government-backed tax saving scheme, you can invest in a national saving certificate for up to Rs.1.5 lakh to claim the benefits of 80C deductions.
18. Sukanya Samriddhi Yojana
Investments made in the Sukanya Samriddhi Yojana scheme are eligible for tax deductions under Section 80C up to Rs 1.5 lakh. The interest earned against this account which gets compounded annually is also exempt from tax. The proceeds that are received on maturity/withdrawal are also exempt from income tax.
19. Contribution to the National Pension Scheme
According to Section 80CCD, an individual is eligible to claim an income tax deduction of up to Rs. 1.5 lakh against contributions made to the NPS. Additionally, another sub-section 1B is likewise presented, which offers an additional deduction of up to Rs. 50,000/ – for contributions made by singular taxpayers towards the NPS.
20. Children’s Tuition Fees
A parent can claim a deduction on the sum paid as tuition fees to a university, college, school, or some other educational institution. Different parts of fees like improvement fees and transport fees are not eligible for deduction under Section 80C.
The most extreme deduction on installments made towards tuition expense can be claimed for up to Rs 1.5 lakh along with the deduction for protection, fortunate reserve, benefits, and so on in a monetary year.
21. Fixed Deposit Until 5 Years
You can get tax exemption under section 80C of the Indian Income Tax Act, 1961. Any investor can claim a deduction of a maximum amount of Rs.1.5 lakh by investing in tax saver fixed deposits.
Thus, you can save tax by such types of various options. However, there are so many other options for saving tax that are not included.
22. Claim Your Home Office Tax Deductions
The pandemic led many businesses to adapt to a new business setup by allowing their employees to work from their own homes.
In fact, 2020 PEW Research data found that 71% are currently working from home all or most of the time. Many workers have started renovating and improving their homes to accommodate their work-from-home needs.
Experts at One Click Life reminded employees that they should not forget about their home office deductions where they can claim expenses related to electricity, cleaning, computer consumables, and even some home improvements that are deemed necessary for their work.
Likewise, they are plenty of options now to conveniently manage and lodge tax returns online, providing work-from-home employees more free time to do other things.