Tax Saving Options and how to use them efficiently

February, March month are quite hectic for Income tax payers. We all look for the best of the options available to save tax and plan to save tax before the financial year ends. Let’s look at the major tax saving/exemption options and how best we can use them to save tax and also to make wealth.

1. Health Insurance under Section 80D:  Last two years have taught us that health is most important in life and hospitalization is very expensive. For this Medical Insurance Premium Section 80D of the income tax act helps us to claim a tax deduction from the total Taxable Income from the payment of medical insurance premiums. We can avail a maximum deduction of Rs. 25,000 per year as you pay for medical purposes for self, spouse or children. The maximum tax deduction limit for senior citizens is Rs. 50,000. Also, if you have spent money on behalf of your parents then you get a maximum tax deduction up to Rs. 25,000. Mediclaim Policy is must for everyone, so take it and also save tax on premiums.

2. Medical Expenses Incurred towards treatment of disabled Person under Section 80DD: Individuals and Hindu Undivided Families (HUF) paying for the treatment and wellbeing of a disabled family member can claim exemptions on total income spent to cover such expenses under Section 80DD.

The coverage limit is determined based on the percentage of disability, wherein people having 40-80% disability are eligible for deduction up to ₹75,000. Families hosting a person having disability higher than 80% can claim up to ₹1.25 Lakh inclusive of all related expenses. Such claims are granted only to the family of such dependent individuals.

3. Income Tax Benefits Extended Towards Disabled Individuals under Section - 80U: Disabled individuals can claim compensation in the form of tax waivers under Section 80U. Such disability has to be certified by a registered medical authority with at least 40% impairment. Incapacitated individuals suffering from 40-80% disability can claim ₹75,000, while people suffering from higher than 80% disability are entitled to maximum ₹1.25 Lakh through tax benefits.

4. Charitable Donations under Section 80G: We can claim 50% or 100% of the amount donated to the charitable trust. To claim the deduction, we need to preserve the Receipt of the organisation after the financial year. Ensure that whenever you donate money, the charities and trusts to be registered under Section 12A post which they qualify for the 80G certificate.

5. House Rent under Section 80GG: Individuals staying in a rented house can claim a tax deduction under section 80GG. This deduction is eligible for those who are not salaried and those employees who don't get House Rent Allowance (HRA) from their employers.

6. HRA for Salaried Under Section 10(13A): This provision of the Income Tax Act caters to tax benefits under house rent allowance (HRA), provided your salary break up contains the HRA component. A total exemption granted under this scheme is the minimum value of the following:

Actual annual HRA disbursed.

50% of yearly salary.

Yearly rent paid – 10% of basic income

7. Education Loans interest under Section 80E: Under Section 80E, the interest paid on loans for higher education remains tax-free for self, spouse and children. An individual can claim the deduction amount of interest paid not the principal amount.

8. Home Loans Interest under Section 80EE: Home loans are one of the best ways to save tax in India. Under the new regime, home loans have assisted in bringing down the taxable income. Section 80EE, first time home buyers can claim a maximum deduction of Rs.50,000 during a financial year. This benefit is on the interest paid on the Home Loan. Note that this is not part of Section 80C of IT Act, 1961.

9. Home Loans Interest under Section 24: Tax Benefit on Home Loan for payment of Interest is allowed as a deduction under Section 24 of the Income Tax Act. As per Section 24, the Income from House Property shall be reduced by the amount of Interest paid on Loan where the loan has been taken for the purpose of Purchase/ Construction/ Repair/ Renewal/ Reconstruction of Property. The maximum tax deduction allowed under Section 24 of a self-occupied property is subject to a maximum limit of Rs. 2 Lakhs

10. Interest on Saving Accounts under Section 80TTA: The interest earned by saving accounts can be claimed as a deduction under Section 80TTA. But, the interest on saving account above Rs.10,000 will be counted as taxable income.

11. Receipts from Hindu undivided family (HUF) section 10 (2): HUF status is given to certain religions like Hindus, Sikhs and Jain families. For them, section 10 (2) states that any income received by an individual as a member of the HUF is exempted from tax duties. Here, the income received by the individual must be paid out of the income of the family (HUF).  

12. Tax saving Investment Under Section 80C: To encourage saving, the Government of India provides concessions on taxes if we invest in certain financial instruments each year. Amounts invested in these classified instruments are eligible for deduction from your taxable income. The annual limit for claiming tax deduction is currently fixed at Rs 1.5 lakhs. The following instruments are widely popular because of specific advantages of each:

(i) Equity Linked Saving Scheme (ELSS): Investment in ELSS Fund or Tax Saving Mutual Fund is considered as the best tax saving option. These funds are specially designed to give you dual benefit of saving taxes and getting higher returns on investment. They have lockin of 3 years

(ii) National Pension Scheme (NPS): The NPS is a pension scheme that has been started by the Indian Government to allow the unorganised sector and working professionals to have a pension after retirement. Investments of up to Rs 1.5 lakh can be used to avail tax deductions under Section 80C. Further there is additional tax exemption of 50,000 under section 80CCD(1)

(ii) Public Provident Fund (PPF): PPF are long term investments backed by government of India. Deposits made in a PPF account are eligible for tax deductions under Section 80C. The rate can change every quarter as announced by the government, currently PPF rate is 7.1%

(iv) Sukanya Samriddhi Yojana (SSY): Sukanya Samriddhi Yojana/Scheme is one of the most popular schemes by the Government of India. The scheme is aimed at the betterment of girl child in the country. Parents/guardians can open an account in the name of a girl child till she attains the age of 10 years. The rate can change every quarter as announced by the government, currently SSY rate is 7.6%

(v) Employee Provident Fund (EPF): EPF is a retirement benefit scheme that is available to all salaried employees. This amounts to 12% of basic salary + DA, that is deducted by an employer and deposited in the EPF or other recognised provident funds.

(vi) National Savings Certificate (NSC): NSCs are eligible for tax breaks for the financial year in which they are purchased. Investments of up to Rs 1.5 lakh in NSCs can be made to save taxes under Section 80C. NSCs can be bought from designated post offices and come with a lock-in period of 5 years. The interest is compounded annually but is taxable. The current interest rate for FY 2021-22 on NSC is 6.8%

(vii) Unit Linked Insurance Plan (ULIP): ULIPs are a mix of insurance and investment. A part of the invested amount in ULIPs is used to provide insurance and the rest of the amount is invested in the stock markets. Investments of up to Rs 1.5 lakh in ULIPs are eligible for tax breaks under Section 80C

(viii) Bank Fixed Deposit (FD): Tax-saving FDs are like regular fixed deposits but come with a lock-in period of 5 years and tax break under Section 80C on investments of up to Rs 1.5 lakh.

 

We can Chose the best options from mentioned above as per our needs and goal, by this we can save tax and be wealthy together.