Invest your Taxable Income in Different Tools. There are various tools investing in which you can claim tax rebate. …
Make Charity Donations. …
Plan for a Home Loan. …
Save Tax through Education Loan. …
Account for Personal Expenses that save Tax. …
Plan for Long Term Capital Gains. …
Get your Salary Restructured. …
Plan a Leave Travel.
Invest your Taxable Income in Different Tools
There are various tools investing in which you can claim tax rebate. Under the Section 80C deductions of the Income Tax Act (ITA) of India, you can claim a deduction of up to Rs. 1.5 lakh from investment in various tools listed in the act.
The list of investment tools which save tax for you include:
Employee Provident Fund (EPF),
Public Provident Fund (PPF),
Equity Linked Saving Scheme (ELSS),
Sukanya Samriddhi Account,
Tax Saving Fixed Deposit,
National Saving Certificate (NSC), and
Senior Citizen Saving Scheme
Make Charity Donations
Government encourages you to make donations and help the poor & needy. Donations to the PM relief fund or notified NGOs or to political parties can give you 100% tax deductions under the Section 80G of the ITA. In the recent amendment of the act, donations to government funds for Swachh Bharat Kosh, Clean Ganga Fund and the National Fund for Control of Drug Abuse are also included in the list.
Plan for a Home Loan
Home loan principal repayment and interest payment can be a massive tax saver for you. For an ongoing home loan, you can claim deduction on the repayment of the principal amount under Section 80C. The payment of the home loan interest can also allow you a deductible amount of up to Rs. 2 lakhs. However, in order to avail the full benefit, the home loan has to be big.
Save Tax through Education Loan
Complete tax exemption is available on the repayment of the interest of an education loan. There is no limit to the deductible amount. However, unlike home loans, exemption is not available on the repayment of the principal amount. Try to consult someone with an experience in investment banking to avail maximum tax saving benefits from loans.
Account for Personal Expenses that save Tax
You are also eligible for tax deductions on some personal expenses including
tuition fees for self and children
insurance premium of self or spouse or children
treatment of specified diseases
medical treatment of handicapped dependents
Plan for Long Term Capital Gains
If you sell a long-term asset possessed by you, you can be exempted from the Capital Gain Tax if the profit amount is re-invested in specified instruments. The asset has to be held by you for over 3 years for it to be counted as a long-term asset. Long term gains from equity shares and mutual funds are also tax exempt provided these shares and funds were held by you for at least a year.
Get your Salary Restructured
Various expenses that you make for the job are tax deductible. You can ask your employer to restructure your salary and accommodate allowances which save tax for you. Such allowances include:
House Rent Allowance
However, all the perks and allowances are not applicable for everyone; they are given only on the basis of your rank. And there is a specified limit on tax deduction on these allowances.
Plan a Leave Travel
If you are given a leave travel allowance from your employer, you can claim tax deductions on the same. However, such claims can be made only twice in four years. Also, the travel has to be within India and the maximum claim can be of AC Tier 1 train journey or economy class air travel.
Now that you know all the ways that can help you save tax; it is important to consider all these factors while planning for tax benefits.
Use up your Rs 1.5 lakh limit under Section 80C
The below mentioned investments/deductions are all subject to a cap of Rs 1.5 lakh. In other words, they are either/or investments and making one type of investment will reduce room for another:
Tax-Saver FDs : You can get a tax deduction of up to Rs 1.5 lakh under 5 year tax-saver FDs. The carry a fixed rate of interest currently between 7-8%. The interest on these FDs is taxable
PPF (Public Provident Fund): Public Provident Fund is a government established savings scheme with a tenure of 15 years available at most banks and post offices in India. Its rate changes every quarter but is currently 8%. The interest on PPF is tax-free.
ELSS Funds: These are mutual funds which invest a minimum of 80% of their assets in equity. They have a lock-in of 3 years. The returns on ELSS funds are subject to Long Term Capital Gains Tax (LTCG) at 10%, over and above an exemption limit of Rs 1 lakh.
NSC (National Saving Certificate): A National Savings Certificate has a tenure of 5 years and a fixed rate of interest. The rate is currently 8%. The interest on NSC is also automatically counted towards the Rs 1.5 lakh 80C limit and is tax-deductible if no other investments are using up the limit.
Life Insurance Premiums: Premiums for different types of insurance policies including ULIPs, term insurance and endowment policies are tax deductible up to Rs 1.5 lakh. However, the insurance cover must be at least 10 times the annual premium.
National Pension System (NPS): This deduction is available under Section 80CCD up to Rs 1.5 lakh for contributions to NPS. This is over and above the Rs 50,000 deduction available under Section 80CCD(1B) discussed below.
Home Loan Repayment: Repayment of the principal amount on a home loan is tax deductible up to Rs 1.5 lakh per annum.
Payment of tuition fees: Payment of tuition fees for your children is tax deductible up to Rs 1.5 lakh per annum.
EPF: Under the EPF Act. 12% of the pay of employees in the organized sector is deducted towards Employees Provident Fund. This deduction counts towards the Rs 1.5 lakh limit under Section 80C.
Senior Citizens Savings Scheme: Contribution to the SCSS is tax deductible up to Rs 1.5 lakh. SCSS has a tenure of 5 years and is available to those above 60. The rate for SCSS is higher than prevailing FD rates and is currently 8.7% (it is taxable).
Sukanya Samriddhi Yojana: Parents of a girl child below the age of 10 can get this deduction. This account has a tenure of 21 years or until the girl marries after turning 18. It has an interest above prevailing rates (currently 8.5%) and the interest is tax-free.
Contribute to the National Pension System
This deduction under Section 80CCD(1B) up to Rs 50,000 is only available for contributions to the NPS. The NPS allows you to invest in equity and debt pension funds and build a retirement corpus. You can withdraw it at age 60.
Pay Health Insurance Premiums
A deduction up to Rs 25,000 is available for health insurance premiums under Section 80D. This is over and above the deductions listed above. For senior citizens, this limit is increased to Rs 50,000. A person contributing health insurance for himself and senior citizen parents can avail of the combined deduction up to Rs 75,000 per annum.
Get a deduction on your rent
You can claim tax deduction on your House Rent Allowance (HRA) if you get HRA. There is no upper limit for this but there are a set of rules that cap the maximum HRA deduction. If you do not get HRA but pay rent, you can claim a deduction under Section 80GG up to Rs 60,000 per annum.
Get a deduction on the interest on your home loan
If you have a home loan, the interest payable on it is tax deductible under Section 24 of the Income Tax Act up to Rs 2 lakh per annum. If you give out the house on rent, there is no upper limit. However, the total loss that can be claimed on the broader head of income from house property is capped at Rs 2 lakh.
Keep some money in your savings account
This is probably the easiest deduction under the Income Tax Act that individuals can claim. Interest on savings accounts is tax free up to Rs 10,000 per year under Section 80TTA. This limit is Rs 50,000 for senior citizens for both FD and savings account interest under Section 80TTB.
Contribute to charity
You can get a tax deduction on your charitable donations. There is no upper limit but different rules restrict the tax deduction amount available on your charitable contributions. For most donations to NGOs, the limit is 50% of the donated amount and up to 10% of your adjusted total income. NGOs under this section are required to have an 80G certificate for you to be able to claim this deduction.