Income tax, two small words can bring tension for those who have to pay it. We think of saving tax every day whether we go for lunch or win a lottery. We pay so many taxes in different forms to the government for the nation’s development. Now, we cannot control how the government spends our money but, what we can control is how much tax to pay to the government. Income tax saving and tax planning is a smart idea as it is also legal while, tax avoidance or not paying the required amount of tax is illegal. There are some smart ways to save on your income tax legally. Let’s discuss those tips.
Income Tax Saving Under Section 80C
Section 80C is perhaps the most common term that is heard while it comes to saving tax There are various investment options that fall under section 80C of the Income Tax Act, 1961. Let’s discuss the most popular ones.
- Life Insurance
Purchasing a life insurance policy is perhaps the most secure and efficient income tax saving method that is a must purchase for everyone as life is simply unpredictable. All types of life insurance policies are eligible for tax deduction under section 80C. This tax deduction is eligible for policy premiums paid for the taxpayer himself, spouse, dependent children or any other member HUF (Hindu Undivided Family). Under this section, the maximum tax exemption rate is 20% of the sum of the annual premium if the policy was purchased on or prior to March 31, 2012. The tax exemption rate is 10% of the sum of the annual premium if the policy was purchased before April 1, 2012.
- Public Provident Fund (PPF)
PPF investors can claim for tax deduction under section 80C. The minimum deposit limit to a PPF account is 1,50,000 /year. So, all the deposits you make to your PPF account are eligible for exemption. But, it is a locked-in process. Hence, you cannot withdraw your money for 15 years from the time of investment. However, partial withdrawals are available only after the completion of 7 years.
- Equity Linked Saving Scheme
As the name suggests, ELSS is an equity scheme. So, this is perfect for financial wealth building as well as income tax saving. Investing in ELSS is a wise idea as it is a tax saver under section 80C. However, they have a requirement of locking-in the money for 3 years from the date of investment. Invest for long term in this scheme for high returns.
- Senior Citizens Savings Scheme
Senior citizens can invest in this scheme to save on income tax. An individual of at least 60 years of age can invest in this scheme for 5 years. Voluntary retirement scheme investors can choose this after the age of 55.
- Home Loan
For all the home loan payers, here’s good news that the income tax department gives you a relief by providing you tax exemptions on the principal amount under Section 80C. The maximum limit is 1,50,000 for claiming tax exemption. Under Section 24, you can also save taxes on the interest amount. The maximum limit for exemption is 2,00,000 under section 24.
Income Tax Saving Under Section 80D
Tax exemption can be claimed on medical insurance premiums under section 80D. A person is eligible for a tax deduction of up to 25,000 for insurance of self, spouse, dependent children. If the individual purchases insurance for his/her parents then tax deduction amount will extend to 25,000 more for parents whose age is less than 60years and 50,000 for parents aged above 60 years.
Income Tax Saving Under Section 80E
Education is quite expensive nowadays. Education loan for higher education after 12th standard can save a lot of tax under 80E. The tenure of tax exemption on an education loan is the maximum of 8 years. But, if the repayment of the loan finishes in 5 years, then the tax exemption tenure will be 5 years only.
Income Tax Saving Under 10(13A) and Section 80GG
HRA or House Rent Allowance is given to an employee by an employer to meet the expenses if the employee is living in rented accommodation. People who get HRA as a component in their salary can claim for tax deduction under Section 10(13A).
An individual who is self-employed or an employee who does not have HRA as a component in their salary but they have expenses regarding accommodation can claim for tax deduction under Section 80GG. The maximum deduction permitted under this section is 60,000.
Income Tax Refund
An income tax refund can be issued when the taxpayer pays an excess amount of tax than the amount the taxpayer owes to the government. This miscalculation happens when n an advance tax, self-assessment tax paid or TDS deduction is higher than the taxpayer’s tax liability. In this case, income tax refund should be filed in the Assessment Year (AY) for the extra amount paid/deducted in the Financial Year (FY).
Save on your income tax every year by tax planning. Spending the money and investing the money in a certain way can prove to be beneficial. Use the ways of saving income tax provided by the government in a smart and legal way.