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How to Save Income Tax?

Find out how to save income tax under different sections of the Income Tax Act, 1961

#Income-Tax
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As a taxpayer, you should not think of the income tax as a financial burden. Instead, look for tax-saving options and look to maximize your tax savings by including different tax benefit investments into your financial portfolio. Learn more about how to save income tax using this elaborate guide about tax saving options.

How to Save Income Tax Max Life Insurance

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

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 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. 

Section 80 of the Income Tax Act Max Life Insurance

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. 

Section 80 of the Income Tax Act Max Life Insurance

Let’s discuss various deductions related to tax benefit investments and other contributions to gain knowledge on how to save income tax:

1. Section 80C

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 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 [1]. Also, learn about investing in tax saving options like ELSS and 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

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 80CCD elaborate on how to save income tax with NPS: 

Section 80CCD (1)

It covers the tax benefit investments in NPS, 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)

It covers tax benefit investments with 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 save income tax.
 

3. Section 80D

Under this section, you can avail deductions of up to Rs.1. Lakh for the premium paid towards tax saving options of health insurance[2]. It implies a dual benefit of health cover and tax deductions while you plan about how to 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

Deductions under Section 80D Max Life Insurance

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

 

Deductions under Section 80D Max Life Insurance

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

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. 

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

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 that encompasses various tax saving options.

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

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.

Tax Deductions for donation Max Life Insurance

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.

Tax Deductions for donation Max Life Insurance

7. Section 80GG

While planning on how to save income tax being a salaried individual, you can claim a deduction on the HRA component of your salary. However, you can claim deduction under section 80GG if you live in a rented place and your salary does not include HRA. 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

Your savings bank accounts give you an interest over time. It becomes a part of your income and thus, can work as tax benefit investments. Section 80TTA allows a deduction on the 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

ARN:- MAY/Bg/07

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