“In this world, nothing can be said to be certain, except death and taxes.” – Benjamin Franklin
The idea that taxes are an unavoidable aspect of our lives rings true in Benjamin Franklin’s wise words. Although we are obligated to pay taxes, we may minimise their effects through careful planning and an understanding of the Indian tax code. In this gripping blog, we will reveal effective tactics that will let you buck the tax system’s inescapability and potentially help you save a lot of money on your Income Tax in India.
What is Income Tax?
Income Tax is a reality that individuals and businesses in India must face. It is a Direct Tax levied by the government on the income earned by individuals, companies, and other entities.
While Income Tax may seem like an overwhelming burden, the Indian tax system provides numerous avenues and provisions that can help you reduce your tax liability within the boundaries of the law. Hence, when it comes to the subject of how to save income tax, let’s have a look at a few of the options.
Ways to Save Income Tax in India
Here are some tax-saving methods that can help you withstand the certainty of taxes and retain a greater portion of your income. Let’s have a look:
1. Harnessing the Power of Section 80C
A taxpayer can reap the benefits of Section 80C, which permits deductions for investments in items like:
| Employee Provident Fund (EPF): | Employee Provident Fund (EPF) is a required retirement savings program in India where a percentage of an employee’s pay is withheld and invested for future financial stability. Under Section 80C of the Income Tax Act, contributions made to the EPF are tax deductible. |
| Public Provident Fund (PPF): | The Public Provident Fund (PPF) is a long-term savings program offered by the Indian government. Under Section 80C, contributions made to PPF are tax-deductible, and interest generated is tax-free. |
| Equity-Linked Savings Schemes (ELSS): | Mutual Funds called Equity-Linked Savings Schemes (ELSS) are predominantly invested in equities and provide potential market returns. Up to a maximum of Rs. 1.5 lakh, investments made in ELSS Funds are eligible for deductions under Section 80C. |
| Tax-Saving Fixed Deposits (FDs): | Banks and other financial institutions provide special Fixed Deposit plans known as Tax-Saving Fixed Deposits (FDs), wherein, investments placed in these FDs have a five-year lock-in period and qualify for Section 80C deductions. The interest received on Tax-Saving FDs, however, is taxable. |
| National Savings Certificates (NSC): | The government offers the NSC which is a fixed-income investing program. Under Section 80C, investments made in NSC are allowable as deductions. The interest is taxable but can also be deducted under Section 80C because it is reinvested. |
2. Unlocking Home Loan Benefits
Gaining access to Home Loan perks may help you pay less income tax in India. You may deduct the interest and principal payments on your Home Loan by utilising these advantages.
You may deduct the interest you pay on a Home Loan under Section 24(b) of the Income Tax Act. You are allowed to deduct a maximum of Rs. 2 lakh annually from the value of a self-occupied property. The whole amount of interest paid is available for deduction without a limit in the event that the property is rented out or is assumed to be rented out.
Section 80C of the Income Tax Act also permits deductions for principal payments made on a Home Loan. First-time homebuyers are eligible for an extra deduction under Section 80EE of up to Rs. 50,000. Individual deductions are also available to joint Home Loan borrowers, thereby doubling the tax advantages.
3. Buying a Health Insurance Policy
Purchasing a health insurance coverage offers tax advantages in addition to protection against medical costs. Health Insurance premiums for you, your family, and your parents may be written off under Section 80D of the Income Tax Act. Age affects the maximum deductions, with larger deductions available to older people. Deductions are also permitted for costs associated with preventative medical exams.
4. Gains from Savings Account Interest
You can utilise the provisions of Sections 80TTA and 80TTB of the Income Tax Act to reduce your income tax on interest income from Savings Accounts. Individuals may deduct up to Rs. 10,000 on interest from Savings Accounts held with banks, cooperative societies, or post offices under Section 80TTA. Additionally, senior individuals (over 60 years old) can deduct up to Rs. 50,000 from their interest payments on savings accounts, fixed deposits, and recurring deposit income under Section 80TTB.
5. Buying Life Insurance Plans
Purchasing life insurance policies gives the benefit of income tax savings in addition to providing financial security for your loved ones. Under Section 80C of the Income Tax Act, premiums for life insurance policies are deductible. The premium amount is subject to a deduction of up to Rs. 1.5 lakh per year, which lowers your taxable income. Additionally, under Section 10(10D), the life insurance policy’s maturity revenues or death benefits are tax-free.
6. Interest Accrued on NRE Accounts
For individuals, interest from NRE (Non-Resident External) Accounts may result in tax advantages. The interest accrued on NRE Accounts is not subject to taxation in India and is not subject to income tax. This results in tax savings, since interest earned through NRE accounts is not included in the person’s taxable income. Non-resident Indians (NRIs) can park their overseas income in NRE Accounts and earn returns that are tax-free.
7. Education Loan Benefits
The provisions of Section 80E of the Income Tax Act can be used to reduce income tax on student loans for education. The amount that can be deducted has no upper limit, and it can be taken for up to eight years or until the interest is paid in full, whichever comes first.
8. Charity Donations
By utilising the provisions of Section 80G of the Income Tax Act, it is possible to reduce income tax through charitable contributions. Donations given to qualified charities and institutions are deductible from taxable income in accordance with this clause. Depending on the type of charity, a different amount may be deducted from income, although there are restrictions and requirements. A deduction of 50% or 100% of the amount given can be made for contributions to certain funds and institutions.
Conclusion
In conclusion, comprehending the applicable regulations and making wise financial choices are necessary for income tax savings in India. People may successfully lower their tax obligations by looking into tax-saving options, taking advantage of home loan incentives, engaging in government programs, and making charitable contributions. Lastly, in order to maximise tax savings, it is crucial to remain up to date on the newest tax laws and regulations.
