Tax Saving - How to Save Income Tax For FY 2024-25

What is Income Tax?

Income tax is a tax imposed by a government on the income earned by individuals and businesses within its jurisdiction.

Individuals are typically required to file an income tax return annually, reporting their income from various sources, such as wages, self-employment income, investment income, and other types of income. The tax liability is then calculated based on the individual's total income and applicable tax rates, taking into account any deductions, credits, or exemptions that may be available.

Income Tax Act for Tax Saving 

There are various sections under which you can save income tax in India. The most popular sections are:

• Section 80C: This section allows you to deduct up to ₹1.5 lakh from your taxable income for investments made in certain financial instruments, such as Public Provident Fund (PPF), Employee Provident Fund (EPF), Unit Linked Insurance Plans (ULIPs), National Pension System (NPS), Equity Linked Saving Schemes (ELSS), and five-year tax-saving bank fixed deposits.

• Section 80D: This section allows you to deduct up to ₹25,000 from your taxable income for the premiums paid towards health insurance for yourself, your spouse, and your dependent children. If you are paying for your parents' health insurance, you can claim an additional deduction of ₹25,000, up to a maximum of ₹50,000 per year.

• Section 80E: This section allows you to deduct the interest paid on an education loan for yourself, your spouse, or your children. The deduction is not limited to any specific amount.

• Section 80G: This section allows you to deduct donations made to certain charitable organizations from your taxable income. The deduction is limited to 50% of the donated amount, up to a maximum of 10% of your total income.

• Section 80TTA: This section allows you to deduct the interest earned on your savings account deposit up to ₹10,000 from your taxable income.

• Section 80EE: This section allows first-time home buyers to deduct the interest paid on a home loan up to ₹50,000 from their taxable income. The loan must have been taken between April 1, 2019, and March 31, 2022, and the value of the house should not exceed ₹50 lakh.

• Section 80EEA: This section allows first-time home buyers to deduct an additional ₹1.5 lakh from their taxable income for the interest paid on a home loan. The loan must have been taken between April 1, 2019, and March 31, 2022, and the value of the house should not exceed ₹45 lakh.

What are the Best Ways to Save Tax Under Section 80C?

Section 80C of the Income Tax Act, 1961, provides for deductions from taxable income for certain specified investments and expenses. The maximum limit for deductions under Section 80C is INR 1.5 lakh per financial year. Here are some of the best ways to save tax under Section 80C:

• Unit Linked Insurance Plan (ULIPs): ULIPs are eligible for tax benefits under Section 80C of the Income Tax Act, 1961. The premiums paid towards a ULIP are eligible for a deduction from taxable income up to a maximum limit of INR 1.5 lakh per financial year.

• Equity-Linked Savings Scheme (ELSS): ELSS is a type of mutual fund that invests in equity and equity-related instruments. It has a lock-in period of three years, which is the shortest among all 80C options.

• Public Provident Fund (PPF): PPF is a long-term savings scheme offered by the government. It has a lock-in period of 15 years, and the interest earned is tax-free.

• National Savings Certificate (NSC): NSC is a fixed-income investment scheme offered by the post office. It has a lock-in period of five years.

• Life Insurance Premium: Premiums paid for life insurance policies are eligible for deduction under Section 80C.

• Employee Provident Fund (EPF): Contributions made to the EPF by an employee are eligible for deduction under Section 80C.

• Sukanya Samriddhi Yojana (SSY): SSY is a government-backed savings scheme designed to encourage savings for the education and marriage of a girl child.

• Senior Citizens Savings Scheme (SCSS): SCSS is a savings scheme for senior citizens, offering regular income with tax benefits.

• Fixed Deposit (FD): Tax-saving fixed deposits with a lock-in period of five years are also eligible for deduction under Section 80C.

• Home Loan Principal Repayment: The principal amount repaid on a home loan is eligible for deduction under Section 80C.

• Tuition Fees: Tuition fees paid for the education of two children are eligible for deduction under Section 80C.

Other Ways to Save Taxes

When it comes to saving on income taxes in India, there are numerous legal avenues available to individuals and businesses. Some other ways to save taxes are: 

• Charity Donations: Donations to specific relief funds and charity organizations are eligible for tax deductions under Section 80G.

• Health Insurance Premium: Deduct up to Rs 25,000 for health insurance premiums for yourself, your spouse, and dependent children. Additional deductions are available for parents' premiums.

• Savings Account Interest: Interest earned on savings accounts is tax-exempt up to Rs. 10,000. For senior citizens, this limit is increased to Rs. 50,000 under Section 80TTB.

• Agricultural Income: Income from agriculture is exempt from income tax.

• Specific Disease Treatment Expenses: Medical expenses for specific diseases are eligible for tax deductions under Section 80DDB.

• Inheritance: Money received through inheritance is tax-free as India does not have an inheritance tax.

• Section 80C Investments: Invest up to Rs. 1,50,000 in tax-saving instruments under Section 80C to reduce your tax liability.

• Disabled Dependent Expenses: Deduct up to Rs. 75,000 for expenses related to a disabled dependent under Section 80DD.

• Business Expenses: Business owners can claim travel expenses as part of business costs to reduce their tax liability.

• Hindu Undivided Family (HUF): HUFs are eligible for separate tax exemptions and a basic tax exemption of Rs. 2.50 lakh.

• Political Party Donations: Donations to political parties are eligible for a 100% tax deduction under Section 80GGC and 80GGB.

• Education Loan: Interest paid on student loans is tax-deductible under Section 80E, with no upper limit.

• Wedding Gifts: Wedding gifts from direct relatives are tax-exempt. Gifts from friends or unrelated individuals are tax-exempt up to Rs. 50,000.

• NRE Account Interest: Interest earned on Non-Resident External (NRE) accounts is tax-free.

• Educational Scholarships: Scholarships awarded to students are exempt from income tax under Section 10(16).

What are the Investment Options Available Under 80C?

Conclusion

There are numerous ways to legally save on income tax in India for the financial year 2023-24. By taking advantage of the various exemptions, deductions, and benefits provided under the Income Tax Act, individuals and businesses can significantly reduce their tax liability.