As a working adult, one of worst feelings is to see a part of your salary deducted on account of taxes. While it is important to be an honest, tax-paying citizen of the country, since this is the money used for the nation’s development, it is also important to make sure you’re not paying more tax than you need to. There is no harm in saving on your taxes as long as you’re doing it in a legal way using the provisions the Government of India has put in place to help you. In fact, the government encourages you to use these provisions as they want you to save taxes as well so that you have a higher disposable income and a better standard of living. To help you do the same, we’ve put together simple ways for you to save on taxes – the right way!
Table of Contents
Tips On How To Save Income Tax Effectively
1. Treat Section 80C As Your Best Friend
Under Section 80C, there are investments and deductions that are tax-deductible up to the limit of Rs 1,50,000. In other words, investing in one scheme will reduce the provision for the other. Here is a list of all the investments and deductions:
A. Public Provident Fund
PPF is a government established savings scheme at most banks and post offices in India for a tenure of 15 years. The rate of interest changes every quarter and it is completely tax-free.
B. Tax-Saver FDs
If you invest money in 5-year tax-saver fixed deposit schemes, you can avail the deduction of up to Rs 1,50,000. The interest rate on them is fixed and currently, it is at 7-8%. However, the interest on these FDs is taxable.
C. National Saving Certificate
An NSC has a tenure of 5 years and a fixed rate of interest. The interest earned on these NSCs is automatically counted under 80C as a deduction and if there are no other investments under the section, the whole deduction of Rs 1,50,000 can be availed.
D. Life Insurance Premium
If the insurance cover is at least 10 times the annual premium, then the premium for these insurance policies like ULIPs, term insurance and endowment policies are tax deductible up to Rs 1.5 lakh.
E. Tuition Fees
Even the tuition fees paid for your children are tax deductible up to Rs 1,50,000.
F. EPF
In the organised sector, 12% of the salary of the employees is deducted towards the Employees Provident Fund under the EPF Act. The limit of this deduction is also Rs 1.5 lakh if there are no other investments.
G. ELSS Funds
ELSS funds are mutual funds that invest at least 80% of their assets in equity. These funds have a lock-in of 3 years and the returns on them are subject to Long Term Capital Gains Tax.
H. Senior Citizen Savings Scheme
SSCS has a tenure of 5 years and is available to those above 60 years of age. This contribution is deductible Rs 1.5 lakh and the interest rate of the scheme is usually higher than prevailing FD rates. This interest, however, is taxable.
I. Sukanya Samriddhi Yojana
If you have a girl child below 10 years of age can avail this deduction. This scheme has a tenure of 21 years or until the girl marries after turning 18. The current prevailing rate of the scheme is 8.5% and this interest is tax-free.
2. Plan For Your Retirement With The National Pension Scheme
Under Section 80CCD(1B), taxpayers are allowed a deduction of upto Rs 50,000 only if it is a contribution to the National Pension Scheme. This scheme allows you to invest in equity and debt pension funds and you can withdraw the amount at the age of 60 only. While you may not get this amount in hand immediately, it will secure your future and make sure you live a relatively tension free life.
3. House Rent Can Go A Long Way In Saving Tax
If you live in a rented house, you can claim this rent as a deduction against your salary. This can be done on your House Rent Allowance if it is a part of your salary. While there is no upper limit for this but there are some rules in place that cap the deduction. Also, if HRA is not a part of your salary then you can claim a deduction under Section 80GG up to Rs 60,000 per annum.
4. Health Insurance Premiums Have More Than One Benefit
Health insurance premiums have a benefit apart from covering your medical care and that benefit can be availed under Section 80D. This section states that a deduction of upto Rs 25,000 can be availed for health insurance premiums. The limit for the same for senior citizens is Rs 50,000 and if a taxpayer is paying for the health insurance for both himself and his senior citizen parents, the combined limit is increased to Rs 75,000.
5. Even Home Loan Can Save You Money
Yes, that’s true! If you’ve taken a loan to buy your home, then, under Section 24, you can claim a deduction of upto Rs 2 lakh per annum of the interest payable on the said loan. However, if you’ve rented out the same house, the entire interest is deductible with no upper limit. Also, under Section 80C, the home loan principal is also deductible upto Rs 1,50,000 within the overall limit of the section. Who knew taking a loan could actually help you save on taxes?
6. Do Some Charity
While doing charity is amazing for spiritual purposes, it is also a good financial decision. If you’re donating to NGOs which have an 80G certification, then your charitable donations are tax deductible. While there is no upper limit to this deduction, there are different rules to restrict the amount. For most NGOs, the deduction allowed is either 50% or 100% of the amount you’ve donated and for others, it is 10% of your adjusted total income. However, your cash donations are capped at Rs 2,000.
7. Your Savings Account Will Come In Handy
For saving taxes, it does not get easier than this. Under the Income Tax Act, the interest on your savings accounts is tax-free up to the amount of Rs 10,000 per year under Section 80TTA. For senior citizens, the limit for the same is Rs 50,000 for both fixed deposits and savings account interest under Section 80TTB.
8. Politics May Save Your Tax Too
You may have never related politics to saving taxes but it may actually help you a lot. If you make donations to political parties, this donation is exempt from taxation if the conditions under Section 80GGC.
9. Grateful For Gratuity
In simple words, gratuity is a sum of money paid to the employees by the company for the services they’ve rendered. However, this amount is only paid to employees who’ve been with the company for 5 years or longer. So this amount received, whether is it on retirement, for becoming incapacitated, on termination or the money received by the widow of the deceased employee, is exempt from taxation subject to certain conditions. The limit of exemption is upto Rs 20,00,000 in the AY 2019-20. Previously, the limit of exemption was Rs 10,00,000.
10. Daily Travel Allowance
Another great benefit that salaried employees can avail is a daily travel allowance. Employees get a tax benefit on a conveyance of up to Rs 1,600 per month from the employer. This adds to Rs 19,200 per annum saved in tax as to claim this benefit you do not need any bills or proof of purchase.
11. Set Off Capital Gains
Capital gains are profits you make on the sale of an investment or a property. Any capital gain you make is taxable. However, if you’ve incurred a capital loss, the Income Tax department allows you to write off this loss in the following year, up to 8 years. However, you must remember that capital losses can only be set off against capital gains and not your salary or other income. So, any capital loss you’ve incurred will reduce your tax burden as it will bring down the amount of taxable capital gain!
12. Medical Bills Work Too
Save up those hospital bills you’ve paid or doctor visits you’ve made to reduce the amount of tax you’re paying! A tax benefit of up to Rs 15,000 can be availed in a single year for the medical bills you’ve paid for yourself and your dependents.
13. Work On Restructuring
Most of the tax you’re paying gets deducted from your salary before it gets credited to your account. So, while you may only desire a higher CTC, you also need to remember that more salary is equal to more tax paid. This is why you need the help of your employer to restructure your salary and make sure all the correct allowances and benefits are given to. This will help increase your take-home salary and your tax burden is significantly lowered!
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