Here are a few tips that can help you save tax from your income

Paying taxes is a civic duty. However, you can utilize various tax-saving tools to reduce your tax liability and maximise savings. This comprehensive guide covers various methods to legally minimize your tax burden as an Indian taxpayer.

• Table of contents

1. How to save tax from income?
2. Use section 24 to save tax on home loan interest
3. Invest in tax saving mutual funds
4. Claim HRA exemption for rent paid
5. Save tax through ULIPs
6. Claim deductions for education loan interest
7. Take advantage of tax-free allowances

How to save tax from income?

Utilize Section 80C deductions

Section 80C of the Income Tax Act provides deductions up to Rs. 1.5 lakh for certain investments and expenses. Using these options efficiently can significantly reduce your tax outgo. Here are some popular ways to claim deductions under Section 80C:

Tax saving fixed deposits

Opening a five-year tax-saving FD in a bank or post office for an amount between Rs. 1 lakh to Rs. 1.5 lakh makes you eligible for Section 80C benefits. The interest rate is similar to regular FDs. This locks your money but offers guaranteed tax-free returns.

Public provident fund (PPF)

You need to maintain the PPF account for 15 years. PPF contributions up to Rs. 1.5 lakh annually qualify for Section 80C deduction.

Equity-linked savings scheme (ELSS)

ELSS funds invest in equities while offering tax saving. They have the shortest lock-in of 3 years among all Section 80C options. ELSS also offers long-term capital gains tax exemption but the returns are market-linked.

Life insurance premiums

Premiums paid for life insurance policies for yourself, spouse or children are eligible for Section 80C benefits. For policies taken after April 2012, the premium should be less than 10% of the sum assured.

Home loan principal repayment

The EMI you pay on your home loan consists of both principal and interest components. You can claim tax benefits on the principal portion up to Rs. 1.5 lakh under Section 80C.

Sukanya samriddhi yojana

Under this scheme, you can open an account for a girl child below 10 years of age. Deposits qualify for Section 80C deduction. The account offers competitive interest rates and matures when the girl child turns 21.

Use section 24 to save tax on home loan interest

Besides principal repayment, you can also claim deductions on home loan interest paid during the year under Section 24 of the IT Act.

● For self-occupied property, you can claim deduction of up to Rs. 2 lakh per year on interest paid.

● If the property is rented out, the entire interest paid is tax-deductible without any upper limit under Section 24.

So, utiliing both Sections 24 and 80C for a home loan maximises tax savings.

Claim deductions for insurance premiums

Apart from life insurance premiums under Section 80C, you can also save tax on health and medical insurance premiums paid for yourself, spouse, children or parents under Section 80D.

● For regular policies, you can claim up to Rs. 25,000 for self/family and an additional Rs. 25,000 for parents.

● For senior citizens, the deduction limit is Rs. 50,000.

● Under Section 80DDB, you can claim deductions for expenses incurred towards medical treatment of specified illnesses.

So, pay your life, health and medical insurance premiums diligently to reduce your tax outgo.

Invest in tax saving mutual funds

Equity-linked savings schemes (ELSS) are mutual funds that provide tax savings under Section 80C, while investing in equity markets. ELSS funds have the shortest lock-in period of 3 years and offers tax-free capital gains if held for over 1 year.

Investing a portion of your Section 80C limit in ELSS provides exposure to equities for wealth creation. It enables long-term capital gains exemption that traditional tax-saving instruments lack.

Claim HRA exemption for rent paid

Salaried individuals staying in rented accommodation can claim House Rent Allowance (HRA) exemption under Section 10(13A) of the IT Act. You can exempt the minimum of:

• Actual rent paid minus 10% of salary
• 50% of salary if staying in a metro or 40% for non-metro cities
• Actual HRA amount received as part of salary

So, claim HRA exemption correctly to reduce tax on your rental outgo.

Save tax through ULIPs

● Under Section 80CCD(1B), you can claim an additional Rs.50,000 deduction for NPS contributions.

● For ULIPs, premiums paid up to 10% of the sum assured qualify for tax deductions under Section 80C.

Utilize these options prudently based on your financial goals.

Claim deductions for education loan interest

Under Section 80E, interest paid on education loans for full-time courses for self, spouse or children is tax deductible. There is no cap on the deduction amount. The course duration should be minimum 1 year from approved institutes.

Education loans can make higher studies more affordable. And the interest deduction provides extra tax savings.

Take advantage of tax-free allowances

Salaried employees receive standard allowances like conveyance, meal vouchers, LTA etc. that are fully tax-free up to specified limits under the IT Act. So, utilize these allowances judiciously to reduce your taxable income.

Similarly, non-salaried taxpayers can claim deductions on allowable expenses like medical bills, rent etc. with proper documentation.

Conclusion

 

Planning your taxes diligently by making prudent use of permitted deductions and allowances can help lawfully minimize your tax outflow. Seek advice from a CA to use the options correctly based on your financial position and goals and follow the above tips to save tax from income.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.