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Taxpayers in India tend to look for various options that can reduce their tax outgo. One way to do this is to save income tax by availing tax deduction benefits offered by various investments and expenses that are included in Section 80C, Section 80D, Section 80E, etc. of the Income Tax Act.
In the following sections we will provide you key details to help you avail a broad-range of tax-deduction options so that you can save income tax and pay less tax on your annual income.
How to Save Income Tax in India?
In India, the Income Tax Act, 1961 oversees all income tax-related matters. As per the Act, it is imperative that your income or profits are subject to taxation in each financial year, which is why you must know about how to save income tax.
You can select various tax benefit investment options depending on your total income and plan how to save income tax accordingly. To dig deeper into various ways you can save tax, you need to first understand about how different tax saving options that come under the Act. In this article, we cover all the major tax deductions under the Income Tax Act:
- Section 80C upto Rs.1.5 lakh
- Section 80CCD on NPS
- Section 80D on Health Insurance Premium
- Section 80E on Education Loan
- Section 80EE upto Rs.50,000
- Section 80G on Donations made
- Section 80GG on HRA
- Section 80TTA on Bank Interest
See how the latest budget impacts your tax calculation. Updated as per latest budget on 1 February, 2020. No deductions will be allowed under the new tax regime.
How to Save Tax using Income Tax Deductions?
The first step towards understanding how to save income tax is to know about various deductions allowed under Income Tax Act for tax benefit investments. They can help you lower down the taxable income as per the tax saving options you choose.
There are several tax saving investments or incurred eligible expenses that can help you claim deductions that can help you save income tax to some extent. Furthermore, different there are multiple sections of the Income Tax Act are dedicated to providing with a variety of tax saving options.
The first step towards understanding how to save income tax is to know about various deductions allowed under Income Tax Act for tax benefit investments. They can help you lower down the taxable income as per the tax saving options you choose.
There are several tax benefit investments or incurred eligible expenses with which you become eligible for deductions and plan about saving income tax accordingly. Furthermore, different sections of the Income Tax Act are dedicated to different tax benefit investments, which you must know to learn about tax saving.
Let’s discuss various deductions related to tax-saving investments and other eligible contributions and how to save income tax this way:
1. Section 80C: Save Tax With Life Insurance & Other Eligible Investments/Expenses
Section 80C is a significant part of the Income Tax Act, which is why you should know about the different tax saving options it encompasses and understand how to save income tax maximally.
Under Section 80C of the Income Tax Act, 1961, you can claim deductions on your tax benefit investments and contributions in various financial products. Many tax professionals primarily consider 80C deductions while explaining how to save income tax.
You can avail deduction of up to Rs.1.5 Lakh under section 80C. Also, learn about investing in tax saving options like ELSS and Public Provident Fund (PPF), to gain better insights on how to save income tax. Life insurance premium amount, ELSS investments, tax saver fixed deposit, PPF investments, PF contribution (Employee contribution only), home loan principal repayment amount and much more are covered under Section 80C of the Income Tax Act, 1961. The total deduction which can be claimed from all the above stated deductions is Rs.1.5 lakh.As a part of tax planning, it is crucial to consider different tax saving aspects of various tax benefit investments.
2. Section 80CCD: Save Tax By Investing in Retirement Plans
While learning about how to save income tax, you may have heard about the National Pension System (NPS). NPS is one of the tax saving options you can choose to reduce your net taxable income. Section 80CCD covers the deductions you can avail of with your NPS investments. To get the hang on how to save income tax with NPS, you must first know about Section 80CCD in detail.
Two of the subsections of Section 80CCD of the Income Tax Act elaborate on how to save income tax with retirement plans like NPS and Atal Pension Yojana (APY):
Section 80CCD (1)
It covers the tax benefits of investing in retirement plans like NPS and APY, which makes you eligible for deductions. You can invest in NPS and avail tax benefits as per your intent on how to save income tax.
The maximum deductions for salaried individuals and self-employed individuals under this subsection are 10% of their salary and 20% of total gross income, respectively. You should know this while planning on how to save income tax.
Section 80CCD(1b)
This sub-section covers the tax benefit of NPS that allows an additional deduction of Rs.50,000 over and above the limit of Rs.1.5 Lakh in 80C. If you earn a handsome salary, you must include the tax saving options covered under this section into your plan of how to reduce your income tax payout.
3. Section 80D: Save Income Tax With Health Insurance
Under this section, you can avail deductions of up to Rs.1. Lakh annually for the premium paid towards health insurance or critical illness rider in life insurance. So purchasing a health insurance policy not only reduces chances of out of pocket medical expenses but also helps you save income tax.
The subdivisions for the tax deduction limit are as follows:
- Deduction of Rs. 25,000 on medical insurance premium for self, spouse and kids
- Deduction of Rs. 50,000 if you are a senior citizen
- Deduction of Rs. 25,000 on the premium paid on behalf of your parents
- Deduction of Rs. 50,000 if your parents are senior citizens
The subdivisions for the tax deduction limit are as follows:
- Deduction of Rs. 25,000 on medical insurance premium for self, spouse and kids
- Deduction of Rs. 50,000 if you are a senior citizen
- Deduction of Rs. 25,000 on the premium paid on behalf of your parents
- Deduction of Rs. 50,000 if your parents are senior citizens
It is essential to know these subdivisions to dig deeper into how to save income tax.
Also Read: Tips to Consider Before Buying Health Insurance Policy in India
4. Section 80E: Tax Benefit of Education Loan Interest Payment
As a part of planning how to save income tax, the education loan you have borrowed can help you avail of tax deduction. Unlike other tax saving options, the interest you repay for the education loan qualifies for a deduction under Section 80E of the Income Tax Act.
To understand more about how to save income tax under this section, you must first check the total amount paid as the loan interest in a financial year. There is no upper limit to deductions claimed under this section, unlike other tax benefit investment avenues. This is a differentiating factor you must know about while thinking about how to save income tax.
5. Section 80EE: Save More Tax With Affordable Housing Home Loans
You must consider the home loan you have borrowed while planning your taxes. It is because Section 80EE allows a tax deduction of up to Rs.50,000 on the interest you pay for home loans. This tax benefit is over and above the limit of Section 80C and Section 24 home loan tax benefits.
Include this section in your tax planning, if you are a first-time homebuyer. Furthermore, the loan amount should not exceed Rs.35 lakh. Knowing about such intricate details is crucial while thinking about how to save income tax.
6.Section 80G: Tax Saving Benefits of Making Donations
Donations are considered one of the tax saving options for Indian taxpayers. Therefore, your charitable acts must be included in your tax saving strategies. You can claim deductions on donations made to non-profit societies under Section 80G.
You must also know the following facts to plan your tax savings under Section 80G:
- Donations must be made towards societies registered under Section 12A to qualify for deductions.
- Cash donations of above Rs.2000 are not considered valid for deductions.
You must also know the following facts to plan your tax savings under Section 80G:
- Donations must be made towards societies registered under Section 12A to qualify for deductions.
- Cash donations of above Rs.2000 are not considered valid for deductions.
7. Section 80GG: Save Tax By Declaring Rent Paid
While planning on how to save income tax being a salaried individual, you can claim a deduction on the House Rent Allowance (HRA) of your salary. However, you can claim deduction under section 80GG if you live in a rented place and your salary does not include the HRA component. This way, the rent paid becomes one of the tax saving options you can utilize.
Under the section, you must not own a home. Also, you can claim the least out of the following in a year as tax savings under Section 80GG:
- Rs.5000 per month
- 25% of your annual salary
- Total rent paid minus 10% of the total income
8. Section 80TTA: Get Tax-Free Interest from Savings Bank Accounts
Your savings bank accounts give you a fixed rate of interest on your deposits. It becomes a part of your income and Section 80TTA allows a deduction on such interest income.
To better understand how to save income tax under Section 80TTA, you must know that you can avail of deduction on:
- Interest income from savings account in a bank/post-office
- Interest earned up to the limit of Rs.10,000
If you struggle to figure out how to save income tax, avail the deductions on earned interest along with other tax saving options.
Also Read: Income Tax Slabs
Frequently Asked Questions About How to Save Income Tax
1. Can I Claim Deductions Without Submitting Proofs to My Employer?
While planning about how to save income tax, it is advisable that you submit the proofs of contributions made into various tax savings options to your employer. This is done to help the employer determine your taxable income as per your tax benefit investments.
However, you can claim deductions for tax benefit investments while filing the return even if you missed submitting the proofs to the employer. Consult a tax professional to know more about how to save income tax.
2. Can I Avail of Deductions under 80C for Life Insurance Premium Paid to a Private Company?
Life insurance is one of the most common tax saving options in India. The life insurance premium can help you plan your tax savings. You can avail of tax deduction u/s 8oC by paying the premium to an insurer approved by IRDAI. If you are planning to buy a life insurance policy, check the estimated premium using online term calculator.
3. Can a Firm Get the Benefit of 80C When Planning on How to Save Income Tax?
Only an individual can reduce the tax liability under section 80C when considering different option on how to save income tax. Unlike other tax saving options, the provisions of this section are not meant for companies.
Sources:
[1]https://dor.gov.in/sites/default/files/IT%20Act%20%28English%29_0.pdf
[2]https://www.incometaxindiaefiling.gov.in/eFiling/Portal/DownloadUtil/ITR_Validation_Rules/ITR-4/ITR_4_Rules_AY_2019-20_V1.0.pdf
Disclaimer:
Save 46800 on taxes if the insurance premium amount is Rs.1.5 lakh per annum and you are:
- Regular Individual
- Fall under 30% income tax slab having taxable income less than Rs. 50 lakh
- Opt for Old tax regime
ARN:- Apr23/Bg/01b
