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How to Save Income Tax
Every year, we are reminded by the taxman, the chartered accountant, or our employer that it is tax planning season.
Apart from the fact that taxes are perceived as a financial burden, a lack of awareness about tax planning might add to the stress. Most taxpayers have trouble putting the tax-saving component into their economic equation.
We’ve put up a comprehensive tax-saving guide to ensure your tax-planning journey goes smoothly.
Income Tax
In 1961, the Income Tax Act became law. The Income Tax Act. governs everything related to the imposition, collection, recovery, and income tax administration.
You may have numerous sources of income as a taxpayer during your life. Your earnings or gains in a particular financial year are taxed under the Income Tax Act of 1961.
Whether you are a paid employee or an entrepreneur, you must pay taxes to the government, bonafide certificate, whether you rent your home or generate money from your investments.
How to Save Your Income Tax Money
You must pay special attention to India’s various tax-saving financial solutions if you want to save a significant portion of your income.
If you believe you have been paying a significant portion of your income in taxes, you have probably not properly managed your taxes. You may save money on taxes in several methods that are legal. The Indian Income Tax Act allows taxpayers to save money on taxes through deductions. The deductions are available to claim when submitting a tax return.
Here are some suggestions to help you save money on taxes:
1. Home Loan
Most individuals are encouraged to save money on taxes by taking out a house loan since deductions may be claimed under three different areas, resulting in significant savings. People who take out a house loan can deduct the principal loan amount from their taxes under Section 80C of the Internal Revenue Code. People can deduct the interest they’ve paid on their home loans under Section 24. In certain situations, a maximum deduction of Rs.2,00,000 is permitted, but in others, there is no limit to the deduction that may be claimed on the amount paid on house loan interest.
Investing in stocks and mutual funds can help people save money on taxes. Citizens earning less than Rs.12 lakhs yearly are eligible for an extra deduction under Section 80CCG of the Income Tax Act if they invest in shares of particular firms and certain mutual funds. The deductions are accessible solely to first-time investors under the Rajiv Gandhi Equity Savings Scheme.
3. Medical Expenses
Taxpayers can deduct medical expenses from their taxable income. People’s medical costs become tax-free if they present their medical bills. Businesses also provide medical Allowance to all employees.
According to the terms of Tax Deduction U/S 80D, a person can claim an annual medical insurance deduction of 25,000 (5000, Preventive Health Check-Ups) for himself, his children, and his spouse, and 25,000 for parents, regardless of whether they are dependent. To submit this claim, an individual must have medical insurance via an insurance company of his choice and pay the annual fee. Elderly citizens’ medical expenditure tax exemption might be as high as $50,000 per year for senior citizens. This means that a senior citizen’s medical insurance can be deducted up to $50,000.
4. Education Loan
People can save money on taxes by taking out an education loan for themselves, their children, or their spouse. People can claim a deduction for their amount on loan interest under Section 80E of the Income Tax Act. The number of deductions they can claim has no upper limit. Individual taxpayers can only seek deductions under Section 80E.
The Indian government has exempted any long-term gains earned via the sale of equity shares from taxation to encourage citizens to engage in equity shares and mutual funds. Only persons who hold such shares for more than a year are free from paying the tax.
6. House Rent Allowance- HRA
Employees in India are entitled to a House Rent Allowance (HRA), which is deducted from their pay. HRAs help people save money on taxes because they can claim them as a deduction. Individuals must present documentation such as a House Owner’s PAN Card, Lease Agreement, etc., if their total rent exceeds Rs.1 lakh in a year. Also, people can only claim the lowest of the following amounts from their employer’s HRA:
- Actual HRA provided by the employer
- 50% of the basic salary if you stay in a metro city ( (if the employee is in a metro city like Mumbai, Delhi, Chennai, or Kolkata) and 40% of the salary if you stay in a non-metro city+ DA
- Actual rent – 10% of basic salary.
7. Leave Trevel Allowance- LTA
Taxpayers who get LTA from their employers are eligible for tax-free LTA. It can be claimed twice in four years. They must visit any place in India throughout their leave time to claim it.
These are some of the most common methods to save money on taxes. Taxpayers who carefully arrange their income, assets, spending, and taxes may be able to save a significant amount of money. It is not recommended to save money by illicit means. For instance, if someone tries to save money by not paying taxes, the money they save will be deemed unaccounted cash or black money, which may cause a slew of difficulties if discovered.
8. Long- Term Capital Gain
Long-term capital gains can save taxpayers money on taxes if they receive this gain by selling any long-term capital asset and then investing it in specific instruments. Any asset that the taxpayer has owned for more than three years is considered a long-term capital asset.
9. Deduction U/S. 80C, 80CCC, 80CCD
These three parts allow Indian citizens to save money on taxes. People can claim certain deductions if they invest in the instruments listed in Sections 80C, 80CCC, and 80CCD. Citizens can claim a maximum deduction of Rs.1,50,000 under any three parts or all three sections together. Section 80CCD allows anyone who invests in the National Pension Scheme to receive an extra deduction of Rs.50,000.
Eligible Investments for Tax Deductions (U/S- 80C, 80CCC, 80CCD)
| 80C | PPF, EPF, LIC premium, Equity-linked saving scheme, principal amount payment towards home loan, stamp duty and registration charges for property purchase, Sukanya smriddhi Yojana (SSY), National saving certificate (NSC), Senior citizen savings scheme (SCSS), ULIP, tax saving FD for 5 years, Infrastructure bonds, etc. are all eligible for deduction under section 80C. |
| 80CCC Deduction annuity plan for life insurance | Payments to annuity pension schemes can be deducted under Section 80CCC. The annuity pension or amount received upon surrender of the annuity is taxable in the year of receipt, including any interest or bonus accumulated on the allowance. |
| 80CCD (1) Deduction for NPSGGGGGGGGGGGGG | Contribution by employees under section 80CCD (1) The following are the maximum deductions allowed:10% of your -1.salary (in case the taxpayer is an employee)
2. 20% of total income (in case of self-employed) 3. Rs 1.5 lakh (limit allowed under section 80C) |
| 80CCD (1)(A) Deduction for NPS | 1. A deduction of Rs 50,000 is permitted for money deposited in an NPS account.
2. Contributions to the Atal Pension Yojana are also deductible. |
| 80CCD(2) Deduction for NPS | This section allows employers to deduct up to 10% of the basic salary + dearness allowance as an employer contribution. Only salaried employee is entitled for this benefit; self-employed individuals are not. |
10. Donation
Citizens of India can save money on taxes by claiming deductions on the amount they spent on donations for social or charitable purposes or by contributing to the National Relief Fund. Section 80G of the Income Tax Act allows them to claim such deductions. The Ministry of Finance lists the organizations to which taxpayers can give and whether or not deductions are authorized depending on the money’s reason. Donations in kind are not eligible for tax deductions. Taxpayers can claim a deduction of up to Rs.10,000 for cash donations, but they must give using cheques for amounts more than Rs.10,000.
The Final Thought
All the above information given to you is authentic. You can save your taxes according to the provided information. You can invest your money in these places. You will not have to face any problems, and you can save your income tax legally.
What is the maximum reduction in taxes?
Section 80C of the Income Tax Act comprises numerous investments and costs you can claim deductions on – up to a ceiling of Rs. 1.5 lakh in a financial year – is the most popular tax-saving option accessible to individuals and HUFs in India.
Is it possible to claim the 80G deduction through my employer?
Yes, you can get an 80G deduction from your company. You will need a document from your company showing that the gift was paid from your income for this.
What types of income are tax-free?
Individuals, HUFs under 60 years of age, and NRIs are eligible for an income tax exemption of up to Rs 2,50,000. An extra 4% health and education cess will be applied to the above tax amount. Surcharge: 10% of income tax on total income above Rs.50 lakh but less than Rs.1 crore.
What does the Income Tax Act of 1961 mean?
The Income Tax Act is a comprehensive law that outlines the many rules and regulations that regulate taxes in the United States. The Indian government is responsible for levying, administering, collecting, and reclaiming income tax. It became law in 1961.
How much of your HRA is tax-free?
HRA exemption is available for the lowest of the three: The amount of HRA that you get from your company. If you live in a metro area, you can deduct 50% of your earnings from your HRA. If you live in a non-metropolitan city, an HRA deduction is available for 40% of your salary and 10% of the actual rent minus the basic salary.
