If a major chunk of your hard-earned money goes into tax payment, then probably you are victim to poor tax planning. In India, several lawful ways allow individuals to save money on their tax payments.
According to Income Tax Act, 1961, Indian citizens are allowed to claim deduction on their taxable income through certain options and investments. As a taxpayer, if you are aware and have done all planning, you can save considerable money from going into tax.
However, to save on tax, you need to be aware of financial tax-saving products.
In this post, we’ll have a look at some best ways that will help you save money on income tax.
Click here to read – Tax Saving Tips: 21 Best ways to save income tax in 2022
Deductions Under Different sections
The applicable tax and deduction vary according to the income tax exemption limit. So, before you look for income tax deduction options, acquaint yourself with tax slabs. You are liable to pay tax only if your income falls under these taxable slabs. However, these slabs are subject to change every year after the budget session. There are three categories depending on which the income tax slab rates in India are decided.
- Individuals (Residents and non-residents under 60 years of age).
- Resident senior citizens (between 60-80 years).
- Resident super citizens (above 80 years).
The exemption limit for each individual will depend on his/her income.
In India, a citizen is can opt to save tax under the following three sections- 80C, 80CCC, and 80CCD. Under these sections, several instruments are enlisted by investing in which you can avail waiver on your income tax.
Now let us explore different tax-saving instruments from different sections that can help you save tax.
Click here to read – 10 Beneficial Income Tax Deductions for Salaried Individuals
1. Home loan
People who have availed of home loans stand to benefit from this. Under section 80C, the principal amount on the loan is liable for deduction from your annual income. The maximum allowable limit for the deduction on the principal amount is Rs. 1.5 lakhs per annum. In addition to this, deduction on interest part in home loans is available under section 24(b). Having a home loan can reduce your tax liability to a great extent; thereby enabling you to save up to a huge part of your income.
2. Health Insurance
Considering the soaring costs of medical bills, the government of India has extended the tax exemption benefits on health insurance policies. Under section 80D of the Income Tax Act, individuals can avail exemption on their annual income paid towards premiums of insurance policies.
However, the allowable deduction may vary depending upon the age of the insured person and the type of insurance policy the taxpayer has opted for.
Maximum tax exemption limit on health insurance premium for different age groups:
- Individuals, spouse, children (below 60 years)- Up to ₹25,000.
- For individuals and parents (below 60 years)- Up to ₹50,000 (₹25,000 + ₹25,000)
- For individuals (below 60 years) and Senior Citizen parents- Up to ₹75,000 (₹25,000 + ₹50,000)
- For individuals and parents (both above 60 years)- Up to ₹1,00,000 (₹50,000 + ₹50,000)
Click here to read – 7 Ways to Save Money On Healthcare Without Having Health Insurance
One of the best options to save tax is to go for capital market and government-sanctioned investment schemes. These investment options allow you to save money and earn interest, as well as benefit you with tax exemption.
Therefore, you can consider investing in stock market tools and mutual funds; the profit earned on these investments is not taxable. Under section 80C, investments up to Rs. 1.5 Lakh are eligible for deductions. Plus, the capital gains below Rs 1Lakh are kept tax-free.
4. Government Saving Schemes
In order to persuade people to direct their savings towards legit resources, the government of India offers tax waivers on its several schemes. These schemes promise attractive returns and are also claimable for a tax deduction. Under section 80C, taxpayers can claim up to Rs. 1.5 Lakh as tax waiver on such investments.
Here is the list of government-backed savings schemes applicable for tax deduction:
- National Pension Scheme (NPS).
- Sukanya Samriddhi Scheme (SSS)
- Senior Citizen Saving Scheme
- Employee Provident Fund
Click here to Read – Pradhan Mantri Suraksha Bima Yojana (PMSBY): Benefits, Scheme, Eligibility
5. Life Insurance Premium
A life insurance policy either purchased for self or a family member is eligible for a tax waiver under section 80C. The tax exemption on life insurance policies is applicable for both the premium amount and the claim amount received on maturity. This provision covers all types of life insurance plans such as Unit Linked Insurance Plans (ULIP), term plans, endowment plans, etc.
A taxpayer can claim a deduction up to Rs 1.5 Lakh paid towards the annual premium; however, it should be equal to or less than 10% of the total sum assured (applicable for policies availed after1st Aril 2012).
Moreover, for policies taken before after1st Aril 2012, the exemption will be allowed if the total premium payments made are equal to or less than 20% of the total sum assured.
This is how you can save income tax in India. But avoid going with the flow, choose an investment option depending on your suitability. What works for one individual may not work for another. So, look for an option that accommodates your financial needs and objectives.