How to Save Tax in India

With the right kind of tax planning to save taxes, exemptions are deducted from the gross total income and income tax is charged as per the current tax slab on the balance income.

Under the Financial Act of 2014, the income eligible for tax deduction has increased from Rs 2,00,000 to Rs 2,50,000. For senior citizens the maximum income exempted will be Rs 3,00,000 yearly. Moreover, as per the act, super senior citizens are eligible for tax exemptions up to the annual income of Rs 5,00,000.

Let’s give some insight on how to save tax under various sections of Income Tax Act.

How to Save Tax Under Section 80C, 80CCC & 80CCD

In order to encourage the culture of saving and to direct the savings of an individual into the right resources, the Government of India permits tax exemptions, but only if the savings are invested in instruments as listed under section 80C, 80CCC, and 80CCD of Income Tax (IT) Act. Under these 3 sections a maximum tax deduction of Rs 1,50,000 is allowed.

With proper tax planning throughout the year, an individual can claim these exemptions for saving tax by making a single investment or a combination of investments in any of these sections. However, it is important to keep in mind that the total tax exemption allowed is limited to Rs 1,50,000. Some of the popular taxes saving investment options are: -

1. PPF Account
2. 5 Years Fixed Deposit for Tax Saving
3. Equity Oriented Mutual Fund
4. Pension Plan
5. Contribution Made Towards the Employee Provident Fund
6. Life Insurance Policy
7. National Saving Certificate

An additional exemption under section 80CCD of Rs 50,000 has been introduced for investments made in the National Pension Scheme (NPS). Moreover, any contribution to the Atal Pension Yojana is also eligible for income tax exemption under this section.

Under section 80CCD of the Income Tax Act, a maximum deduction of 10% is allowed from the salary if the taxpayer is a salaried employee, or 10% exemption from the gross total income is allowed if the taxpayer is self-employed.

How to Save Tax under Section 80D, 80DD and Section 80DDB

Income tax exemption is also applicable if an individual has made an investment to secure his own health or the health of his family members. Different amounts of exemptions are available under each of these sections which help save tax subjected to the type of insurance policy purchased, such as: -

1. Section 80D: Premium of Medical Insurance for Self, Spouse or Children
2. Section 80DD: Medical Treatment of Handicapped Dependents
3. Section 80DDB: Treatment of Specific Diseases

Section 80DD: An individual can claim up to Rs. 75,000 on medical treatment of their dependents (parents, spouse, children, and siblings), who have a disability, under section 80DD of Income Tax Act. In case of an adverse disability of 80%, up to Rs 1.25 Lakh of a sum is exempted from taxation under section 80DD of the IT Act.

Section 80D: A deduction of up to Rs 30,000 is eligible against the premium paid on medical insurance for senior citizens above 60 years of age under section 80D of the IT Act. Moreover, under section 80D of the IT Act, up to Rs 25,000 can be exempted towards the premium paid for medical insurance of self, spouse and children and an additional Rs 25,000 can be claimed towards the premium paid for medical insurance of the parents.

Section 80DDB: In case of the treatment of a specified critical illness up to Rs. 40,000 can be claimed by an individual below 40 years of age. The claim can also be made for his/her dependents. Up to Rs 60,000 can be claimed by senior citizens above 60 years of age, and up to Rs 80,000 can be claimed by super senior citizens above 80 years of age, under this section.

While claiming income tax exemption under section 80DDB of the Income Tax Act, it is mandatory for a person to attain a medical certificate from a professional doctor in a hospital.

How to Save Tax in India for Salaried Individuals?

Income earned from one’s salary is the first head of income tax; this part mainly includes any salary earned by an individual by providing his/her services to an organization based on their employment contract. The salary of an individual also includes basic salary, pension, advance salary, gratuity, commission, annual bonus, and perquisites.

There are specific tax deductions provided by employers when processing their employees’ salaries.  These exemptions are: -

1. Conveyance Allowance: Up to Rs 800/- per month is tax exempted.
2. House Rent Allowance: House rent allowances can be claimed by salaried individuals who live in a rented house in order to avail tax benefits.

The tax exemption available on HRA is the lowest of the below-mentioned amounts:

1. Actual House Rent Allowance Received.
2. For individuals living in metro cities, 50% of the basic salary + dearness allowances, while it is 40% of the basic salary + dearness allowances for individuals living in non-metro cities.
3. The actual rent paid is less than 10% of the salary.
4. Leave Travel Allowances: LTA is applicable for expenses for travel. While many organizations pay leave travel allowances to their employees, it is tax exempted twice in a period of 4 years.
5. Medical Allowances: Medical expenses up to Rs 15,000 incurred by you or your family members is tax-free on a yearly basis.

How to Save Tax on Income from House Property?

Under the Income Tax Act 1961, section 22 to 27 is allocated for the requirements of the calculation of total standard income of an individual from the property, house or land that is owned by him/her. However, the important aspect to keep in mind is that the tax is charged on the value of property or land and not on the basis of the amount of rent received.  Thus, if the property is used for commercial purposes or for the normal course of business, then the income received from rent will be considered for taxation.

How to Save Tax on Income from Business Profits?

Income from the profit of the business, the difference between the revenue earned and expenses will be taxable. However, this income from business or professional heads can be saved from taxation by investing in stocks. Under section 35AD of income tax act tax benefit can be availed in case of manufacturing enterprises and/or for introducing any new venture.

How to Save Tax in India on Long-Term Capital Gains?

If a taxpayer avails of any long-term capital gains from the sale of a long-term capital asset, he/she can avail a tax deduction. Any asset that is held by the taxpayer for more than 3 years is considered a long-term capital asset.

Income from capital gain is exempted under section 54, 54B, 54D, 54EC, 54ED, 54, F, 54G or 54GA.

How to Save Tax in India through Home Loans?

If an individual has taken a home loan, then he/she can claim exemption for the settlement of the principal amount of the home loan under section 80C of Income Tax Act. Moreover, under section 24 of Income Tax Act, one can also claim exemption on the interest paid on the home loan. The maximum deduction of Rs. 2,00,000 is allowed in some cases.

Saving taxes by taking a home loan is beneficial as one can claim repayment of the home loan under 3 types of sections resulting in tax benefit to the taxpayer.

 How to Save Tax in India through Education Loan under Section 80E of Income Tax Act.

An individual can claim tax exemption under section 80E of Income Tax Act if he/she has taken an education loan for higher studies of his/her children, spouse, or himself/herself. However, the repayment of the interest amount is only applicable for the tax exemption and not the principal amount. There is no pre-determined limit for claiming tax deduction under this section. However, tax rebates under section 80E is only applicable for individual taxpayers and not for Hindu Undivided Family.

How to Save Tax in India on Long-Term Capital Gain

If a taxpayer avails any long-term capital gains from the sale of a long-term capital asset, he/she can avail tax deductions. Any asset that is held by the taxpayer for more than 3 years is considered a long-term capital asset.

However, according to the recent budget released by the government above 1 lakh of long-term capital gain is 10% taxable under the Income Tax Act of India

How to Save Tax from the Sale of Equity Share?

In order to boost the habit of investing in mutual funds and equity shares, the government of India provides income tax exemption on long-term gains offered from the sales of equity shares, on the condition that these shares were held from the span of more than 1 year. 15% tax will be charged if the share is held for the period of less than 1 year.

Some Additional Tips on How to Save Tax in India

1. Under Section 80RRB of Income Tax Act, tax exemption is allowed on the income received by way of patents and royalties. According to the Patent Act of 1970 up to Rs 3,00,000 of a sum can be tax exempted.
2. Under section 80U of Income Tax Act, the disabled can avail tax exemption up to the limit of Rs 1,00,000. In order to avail the tax benefit, an individual is required to show his/her disability certificate.

Conclusion

By choosing any of the above-mentioned sections as per one's suitability, he/she can save a lot of their hard-earned income and can achieve their ultimate financial goal of the year.