How To Save On Income Tax In India?
Tax liability on annual earnings is a statutory levy; but, that doesn’t mean you cannot save on it!
The Government of India allows taxpayers to avail several tax-saving benefits, such as exemptions and deductions, to make their tax burden more manageable. They can do so by directing their finances to a specific use or opting to invest in dedicated instruments. Typically, awareness regarding such tax-saving options will enable individuals to take the necessary steps to benefit from it, while facilitating better financial planning.
That being said, you must ensure to check which of such income-tax saving mechanisms prove useful for you and make the most of it accordingly.
So, what exactly are these tax savings instruments? Read on to learn more about them!
Tax Relief Under The Income Tax Act (ITA), 1961
The following sections of the Income Tax Act extend tax reliefs to applicable individuals –
| Sections Of ITA |
Investment Option |
Exemption Limit |
| 80C | PPF, NPS, ELSS, PF, insurance policy, etc. | Rs. 1.5 Lakh |
| 80CCD | Investment in NPS | Rs. 50,000 |
| 24B | Interest paid on housing loans | Rs. 2 Lakhs |
| 80E | Interest due on education loans | Fully exempted |
| 80EE | Outstanding interest on housing loans | Rs. 50,000 |
| 80D | Investments in medical insurance policies either for parents or self | Rs. 50,000/25,000 |
| 10(13A) | House Rent Allowance or HRA | Based on the taxpayer’s salary structure |
Besides these, several other exemptions can be availed under exceptional circumstances. Keep an eye on annual budgetary announcements, to gain early insight into the exemptions or deductions introduced for enhanced savings.
Ways To Save Tax Through Various Investment Instruments
Here’s an insight into some tax-saving options and their accompanying exemption limits to help save more on tax payment.
Under Section 80C of Income Tax Act, 1961, individuals and HUFs can claim deductions of up to Rs. 1.5 Lakh in a year, with investments in the following instruments –
1.Equity-Linked Savings Scheme (ELSS)
Did you know that ELSS is the only mutual fund category that extends the facility of tax deduction under ITA? This investment scheme accompanies a 3 year lock-in period.
Usually, the returns generated through ELSS are relatively higher, when compared to other tax-saving schemes. It is because of the scheme’s link to the equity market, and its high return-generating capacity. Nevertheless, the investment option also comes with a high margin of risk.
2.Public Provident Fund
Fundamentally, PPF is a long-term investment option, with its maturity period extending up to 15 years. The rate of interest accompanying is revised every quarter, and the return so generated is exempted from tax. Above all, you can open a PPF account with a minimum investment value of Rs. 500 only.
3.National Savings Certificate
The income tax saving scheme comes with a 5-year tenure, and typically offers interest-earning opportunities under fixed-rate method. You must note that the earnings generated through this scheme are also available for tax deductions.
4.Senior Citizens Savings Scheme
The tax-saving scheme customised for senior citizens, allows individuals above the age of 60 years to avail the tax-saving benefits. However, while the interest earned on this scheme is taxable, senior citizens can claim tax deductions of up to Rs. 1.5 Lakh on the annual earnings.
5.Employee Provident Fund
The EPF is considered a potential means of saving taxes for salaried employees, as up to 12% of the salary contributed to EPF deposits is tax-free.
6.Sukanya Samridhi Yojana
The investment scheme proves useful in lowering an individual’s tax burden as the interest earnings under this scheme are tax-free. Regardless, only an individual with a daughter below the age of 10 years can benefit from this tax-saving scheme.
7.Repayment of housing credit
Under Section 80C, existing home loan borrowers can claim annual deductions on the repayment of loan principal and interest payment up to specified limits. It makes the process of repaying the existing home loans more manageable. So, if you have availed a home loan, make sure to find out the deductions applicable, as per the loan amount repaid.
8.Tuition Fee
When funding your child’s education, you may be entitled to avail of a maximum tax deduction of Rs. 1.5 Lakh against the amount of tuition fees paid. Such a benefit is extended to all parents, including adoptive or divorced parents.
The following are some other effective ways of saving taxes, irrespective of the existing tax rate –
- Purchasing a life insurance policy
- Submitting rent receipts
- Through charitable donations
- Purchasing a house
Bottom Line
You can lower your income tax burden successfully either by investing in tax-savings instruments or by availing of the government’s exemptions, under different situations specified. Make sure to find out more about the terms of exemptions without failing to streamline the process.
