Here Are 10 Tax Saving Tips You Can Benefit From Today!

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Here Are 10 Tax Saving Tips You Can Benefit From Today!

Every salaried individual wants an extra part of their income saved, as experts say, “a penny saved is a penny earned.” If you want this extra money saved, stay tuned for this piece of content where I have described the top 10 income tax saving tips to save your hard earned income.

Here is what I will talk about:

 

How to save income tax in India?

Taxes are one of the important instruments for a nation to run smoothly, as they provide revenue for the development of public infrastructure and services such as healthcare and education. The government also makes use of tax money to provide various schemes for different sections of our society.

 

Also Read: How to handle investment declaration in payroll?

 

But as a taxpayer, who doesn’t want to have some extra savings in their pockets, so that you can enjoy more luxuries and benefits. You can’t save yourself entirely from paying taxes if you don’t fall under the basic exemption limit, as defined in tax slabs, established by the Income-tax department.

 

There are certain deductions and exemptions prescribed by the income tax department that you can avail off to reduce your tax liability and start saving income tax.

These deductions are called tax-saving instruments. You can invest in these tax-saving investments so that it provides you with two-pronged benefits:

  1. Grow your investments
  2. Have more money saved in your pocket

 

Also Read: What is Professional Tax (PT)? The ultimate guide.

 

How can I reduce my taxable income?

There are tax slabs specified by the Income Tax department of India for different income ranges. If you fall above the basic exemption limit, then you are liable to file income tax. 

 

CASE 1

Here is the case of a young boy named Rahul, 22 years old and has started his job as a software engineer and his income is INR 7,50,000 without TDS.

 

Also Read: How to calculate Income tax and TDS like an expert

 

Here are some tax-saving investments and deductions that he can avail of so that he can save income tax:

Deductions Max Amount (Rs.)
Standard deduction 50,000
Section 80C 150,000
Section 80CCD (1B) NPS 50,000
Section 80D 25,000
Section 24(b) 200,000
Total 4,75,000

 

Now if we calculate his taxes, without availing these deductions, it would be:

Total Taxable Income Rs. 7,50,000
(Minus) Tax Saving Investments/Spends–Standard Deduction Rs.(50,000)
(Minus) Section 80TTA (savings in banks, post office, etc) (10000)
Net Taxable Income Rs.6,90,000
Tax on Net Taxable Income: NA
20% of Rs. 190,000 (Rs.690,000–Rs.500,000) Rs. 38,000
(Add) 5% of Rs. 250,000 (500,000–250,000) + 12,500
Total Tax on Income 50,500
(Add) 4% Cess + 2,020
Total Tax Payable for FY 2019-20 Rs. 52,520

 

With tax savings:

Total Taxable Income Rs. 7,50,000
(Minus) Tax Saving Investments/Spends Rs.(4,75,000)
(Minus) Section 80TTA (savings in banks, post office, etc) (10000)
Net Taxable Income Rs.265,000
Tax on Net Taxable Income:  
5% of Rs. 15,000 (265,000–250,000) Rs.750
Rebate u/s 87A (Rs.12,500 or Actual Tax payable; whichever is less) Rs. (750)
Total Tax on Income NIL

 

 

CASE 2

We can also look at this case from a different angle:

Here is what Rahul’s payslip states:

  • Basic salary – 30,000
  • House rent allowance – 15,000 
  • Special allowance – 10,000
  • Net salary – 6,60,000

 

 He finds out that his employer deducts TDS every month from his salary. Now he wants to know if he can save any income tax, so first, he needs to calculate his gross salary (total income from other sources). 

He has been receiving an interest of 2,500 on the principal amount of money deposited in the savings account. Also, he has invested 50,000 in FD so he is earning 3500 as interest out of that, so his gross salary would be:

  • Basic salary- 30,000
  • House rent allowance- 15,000
  • Special allowance- 10,000
  • Other incomes – 6,000

Net Income- 6,66,000

 

He also revealed that he pays a rent of 10,000 every month. In order to claim HRA exemption he must provide the rent agreement and rent slips signed by his landlord. You can check out our detailed blog on how to calculate HRA

His HRA exemption would be:

  • HRA received (1) – 15,000
  • 50% of basic salary – 15,000
  • Rent paid minus 10% of basic salary- 7,000
  • Less of the above HRA exemption (2) – 7,000
  • HRA taxable – 8,000

 

Revised tax calculation:-

  • Total salary income – 5,76,000
  • Basic salary- 3,60,000
  • HRA exemption – 96,000
  • Special allowance- 1,20,000

Salary from other sources – 6,000 

 

  • Gross salary- 5,82,000
  • Deduction from 80C – 1,50,000
  • Deduction from 80tta – 2,500
  • Taxable income- 4,29,000
  • Tax payable – 8,975
  • Rebate under section 87A – 8,975
  • Tax – nil

So now Rahul does not need to pay any taxes. That is how he can save all his taxes with a basic exemption limit and other deductions.

 

What is best for tax savings?

If you are a salaried individual earning between 5 and 15 lakhs net salary per annum, then you should know about your existing tax liability. Once you know the amount of tax you need to pay, then you must plan to save tax by availing tax exemptions and deductions under the relevant sections of the Income Tax Act.

For maximum tax savings, you should know and invest in tax savings options, make voluntary donations, take a home loan, plan long-term capital gains, and ask your employer to restructure your salary.

You must always remember to plan your tax savings early, preferably at the beginning of the financial year, to prevent any stress or hassle in filing your income tax.

 

Tax savings investments in India 2021-2022

 

Saving income tax by investing in schemes under section 80C

This is one of the most common tax-saving investments that most Indians are benefitting from. It can be used by salaried/ self-employed individuals, HUFs and NRIs, but can’t be availed by corporates, AOPs, LLPs. 

Section 80C also includes subsections 80CCC, 80CCD (1), 80CCD (1b), 80CCD (2).

80C allows a deduction for the investment made in:

 

Tax Savings Schemes

Provident Fund (PF)

A provident fund is a government-managed retirement savings scheme that is compulsory for employees who should contribute every month for retirement funds. The employee can access this lump sum on his retirement without tax.

 

LIC premium 

You can exempt life insurance premium payments under section 80C, subject to a maximum deduction of Rs. 1,50,000, but the only condition is that the premium should be less than 10% of total sum.

 

School/College Education Expenses 

Parents can claim a deduction for tuition fees under section 80C on payments to schools, colleges, and universities. Other components of the fee, such as transport or development fees, are not eligible.

 

Equity Linked Savings Scheme (ELSS) 

This is the only type of mutual fund that is eligible for tax exemption. These mutual funds are equity linked and invest about 65% of the amount in shares.

 

Principal amount of home loan

You can claim the amount paid as the principal repayment of the home loan as a deduction. However, the property should not be sold within five years of its possession.

 

Sukanya Smriddhi Yojana (SSY) 

The scheme is part of Beti Bachao Beti Padao campaign where parents can deposit money in the name of a girl’s child. Parents can then claim a deduction of the entire amount, which can be accessed by the girl’s child after maturity. It focuses on securing a bright future for a girl child by allowing her parents to build a fund for proper education and marriage.  

 

 

National Savings Certificate (NSC) 

This is a fixed income savings scheme which can be opened at any post office branch. This obviously is tax free and its interest per annum is 6.8%.

 

Senior Citizen Savings Scheme (SCSS) 

Opening SCSS is very easy. You can open it in any bank, and the interest you will receive is about 7.4%

 

Post Office Time Deposits 

This is like bank fixed deposits and can be exempted from income tax.

 

Unit Linked Insurance Policy (ULIP) 

This is a combination of both investing and insurance so that you can have both term insurance and investment in equities.

 

Tax Savings FD 

One can claim a tax exemption on the amount invested in FD for five years, and you will get returns from 7% to 8%.

 

Infrastructure bonds 

Section 80C states that an amount of 20,000 invested in infrastructure bonds can be exempted from income tax. However, the upper limit is INR 1,00,000 if you hold bonds for about 10 to 15 years.

 

Tax saving instruments

Average Interest Lock-in period for Risk factor
ELSS funds 12%–15% 3 years High
NPS Scheme 8%–10% Till 60 years of age High
ULIP 8%–10% 5 years Medium
Tax Savings FD 7%–8% 5 years Low
PPF 7.10% 5 years Low
Senior Citizen Savings Scheme 7.4% 5years (can be extended for another 3 years) Low
National 6.8% 5 years Low
Sukanya Samriddhi Yojana 8.4% Until a girl’s child reaches 21 years of age

 

(partial withdrawal allowed when she reached 18 years)

Low

 

Saving Tax after 1.5 lakhs

This is only available for NPS subscribers. You can claim a deduction of 50,000 under section 80CCD (1b) additionally for contributing towards the NPS.

The deductions are now increased to a limit of 2 lakhs under 80C and subsections.

 

Tax savings options for salaried

Section 80C

  • Public Provident Fund
  • National Savings Certificate
  • National Pension Scheme
  • Employees’ Provident Fund
  • Tuition fees
  • Post office tax savings deposit for five years
  • Bank deposit
  • Life Insurance Premium
  • Equity Linked Savings Schemes
  • Principal repayment of home loan
  • Sukanya Samriddhi Account Deposit Scheme
  • Post Office Senior Citizens Savings Scheme

The maximum exemption limit under this section is I.N.R 1.5 lakh. One of the most important sections for tax deductions.

Section 80CCC

  • Pension Fund

This section allows a maximum deduction of I.N.R 1.5 lakh.

Section 80 CCD

  • Atal Pension Yojana

Allows a deduction of a contribution of up to 10% of the total salary of salaried employees. It is important to remember that the complete deduction under Section 80C, Section 80CCC and Section 80CCD (1) cannot exceed INR 1.5 lakh in aggregate. The additional tax deduction amounting to INR 50,000 under Section 80CCD (1B) is above this limit.

Section 80D

  • Premium paid for Medical Insurance

Rs.25,000 for self, spouse and other dependent children. The additional deduction for insurance of parents of less than 60 years of age is up to I.N.R 25,000. Rs.50,000 in case of parents above 60 years of age.

Section 80DD

  • Spending on the treatment of dependents with Disability

Rs.75,00 in case of 40% disability. and I.N.R 1.5 lakh in case of severe disability.

Section 80DDB

  • Medical Expenditure for individuals and HUFs below 60 years of age
  • Medical Expenditure of Dependent—Senior Citizen or a Very Senior Citizen
  • Deduction of up to 40,000 towards treatment of individuals or HUFs below 60 years of age.
  • Limit of 1 lakh on treatment of senior citizens including super senior citizens

Section 80 CCG

  • Rajiv Gandhi Equity Savings Scheme

This scheme has been withdrawn 

Section 24B

  • Loss under the head: “Income from House Property”

This allows a tax benefit on the repayment of the loan of a second house up to INR 2 lakh

Section 80E

  • Interest on Loans for Higher Education

The amount of interest paid during the previous year is up to 8 Assessment Years or until the interest referred is paid in full, whichever is earlier.

Section 80EE

  • Interest on loans for Residential House Property

First-time home buyers can claim a tax deduction of 50,000 on home loan interest

Section 80 EEA

  • House loan interest payment

Section 80EEA allows deductions for interest payments up to Rs 1.5L. The deduction is over and above the deduction of Rs. 2 Lakhs available under section 24. 

Section 80G 

  • Donation

50% /100% of Donation or 10% of adjusted GTI, whichever is lower. Donations made to political parties can be claimed as a deduction under section 80 GGC.

Section 80GG

  • Rent

Deduction of I.N.R 60,000 per annum. Lower of:

  • Rent paid- 10% of Adjusted Total Income
  • 25% of the Adjusted Total Income
  • Rs.5,000/- per month

Section 80U

  • Person with Disability

Rs.75,000/- for a person with a disability and Rs. 1,25,000/- in case of a person with a severe disability.

Section 80TTA

  • Interest on Deposit in Savings Bank Account

Up to Rs. 10,000/- for individuals & HUF

Section 80 TTB

  • Interest on Deposits

Up to Rs. 50,000 shall be allowed to resident individuals who are senior citizens.

 

 

Tax savings options other than 80C

 

tax saving options other than 80c

 

There are also some other options that you can select for saving income tax other than section 80C, especially in case you are buying a home or you are a parent.

 

These are mainly through loans, insurance premiums, savings bank account interest, house rent allowance, donations to charity and political parties, disability, medical expenses, and royalty.

 

We will talk about some of them. 

 

You may be interested in: [Section 80 JJAA] How to get a tax deduction in employee generation

 

How to save tax without investments?

The income tax department has provided various schemes to claim deductions and exemptions to reduce the taxable income of the taxpayers. 

You can subtract these deductions from taxable income under chapter 6  A under Section 80 to reduce tax. 

These deductions can be claimed by making some investments under various schemes. However, there are some deductions you can claim by making no investments.

Some of the tax deductions that can be claimed without specifically investing in tax saving instruments are:

 

Medical Insurance [Income Tax Section 80D]

It is important that every individual should be medically insured as you can’t predict the future but unfortunately, most of the Indian population is still not covered under medical insurance. 

Having medical insurance can provide you and your family safety, and also ease the burden on your pocket, as you can claim an income tax deduction with section 80D of the Income Tax Act.

Who are all eligible for medical insurance deductions:

  • Yourself
  • Spouse
  • Dependent children
  • Dependent parents

The amount of deductions available under section 80D

Scenario Premium paid (Rs)   Deduction under 80D (Rs)
  Self, family, children Parents  
Individuals and parents below 60 years 25,000 25,000 50,000
Individuals with families below 60 years but parents above 60 years 25,000 50,000 75,000
Both individuals, families, and parents above 60 years 50,000 50,000 1,00,000
Members of HUF 25,000 25,000 25,000
Non-resident individual 25,000 25,000 25,000

 

Tax savings on home loan interest payments

Section 24b of the Income Tax Act allows deductions of interest on home loans from taxable income. This loan should be taken for construction, purchase or reconstruction of a house property.

The deduction is allowed in any form of a loan, whether it may be a house loan or a personal loan, or a loan from a friend/relative. 

The purchase/ construction should be done within 3 years.

 

Get your salary restructured

Restructuring your salary can also possibly reduce your taxable income by increasing the tax-free components in the salary. As you know, salary is broken up into components like basic salary, house rent allowance, special allowance, and so on, and these components are taxed differently.

There are certain allowances and contributions which you can look to add to your salary, in order to further cut down the taxable income. These include:

Allowances

  1. Children’s education allowance
  2. Hostel allowance
  3. Meal allowance
  4. Uniform allowance
  5. Professional pursuits allowance
  6. House rent allowance
  7. Leave travel allowance

 

Contributions

There are some contributions that are made by your employers, such as provident funds. Provident funds are fully tax exempt and can save you big taxes.

Check if you can increase the basic salary of the salary component as the higher the basic salary, the more is the contribution towards PF.

You can also opt for NPS contribution as it allows 10% of basic salary as tax-exempt.

Also Read: Salary Structure in 2022: Meaning, Importance, Breakup and Calculation

 

Plan long term capital gains

It is important that you invest money in long-term assets as you can save more tax on the gains from the capital that are held for over 2 years.

  • Investment in bonds issued by NHAI or RECL
  • Invest in a unit linked insurance plan
  • Deposit under capital gain account scheme

 

Make charity donations

Donating to a charity or other causes is considered noble work. The government supports you in this work as donations can be deducted to reduce your income tax. You can claim 100% or 50% deductions on the charity, depending on the donations specified in the section. These deductions can be claimed by an individual, company, or HUFs

These deductions can only be claimed if the donation is made through cheque, draft, or cash.

 

Personal expenses

There are some personal expenses that can be claimed as deductions.

Food expenses – food coupons or meal coupons can be claimed as a deduction up to a limit of 2,600 Rs. Business owners can show their food expenses to claim deductions.

Travel expenses – Leave travel allowance is an option for salaried individuals to save on expenses made on spouse and children.

Telephone and internet expenses – Telephone and internet bills can be claimed for income tax deductions.

 

Saving Income Tax through an Education loan

Education loans are also an important source of finance for most Indian students, as many of them come from a middle-class background. 

If you have taken an education loan, you can claim a deduction from your income tax under section 80E of the Income Tax Act.

An individual can only claim this deduction. They can take a loan for themselves, their spouse, and their children.

Parents can easily claim a deduction on their income tax if they pay interest on the education loan.

The total interest paid will be considered as a deduction.

 

Buying LIC insurance policies

When your LIC policy is matured and the lump sum is accessible to you, the amount is tax free under section 10 (10b) of the Income Tax Act. However, there are certain conditions that need to be fulfilled to claim the amount.

 

How to save income tax on a salary above 10 lakhs?

Income growth will attract more tax liabilities. However, the Indian government allows multiple ways to reduce the same. The most effective of them is investing in tax saving instruments.

Here is the list of investments that will help you save more tax.

  1. Reduce Your Taxable Income by Up To Rs 1.5 Lakhs (Section 80C, 80CCC, 80CCD)
  2. Additional Reduction of Up To Rs 50,000 for NPS Investors (Section 80CCD)
  3. Reduce Your Taxable Income by Up To Rs 75,000 (Section 80D)
  4. Reduce Your Taxable Income by Up To Rs 2 lakhs (Section 24)

 

How to save income tax on salary in FY 21-22

This is when your HR will ask you for all the documents to support what you have mentioned as investments under the various deductions to save tax for the Financial Year. You may or may not have invested in these schemes.

I will repeat – plan your finances well, as many experts say “A penny saved is a penny earned”. It starts with saving income tax.

The Indian government encourages employees to invest in various schemes to save tax and claim exemptions and deductions so that it gives you mutual benefits of both saving income tax, and growing your money through these investments.

You can plan your budget with ease and save taxes on various personal expenses as well. You can start your financial planning by investing through SIP in mutual funds like ELSS, make an FD for 5 years which includes in deduction amount in Sec 80C.

 

 

 

Frequently Answered Questions

  • How to file income tax returns in India?

You can file income tax online on the income tax portal, therefore you do not need to visit your nearest income tax office to file your ITR.

 

  • What are the income tax slabs?

The income tax slab means that an individual or HUFs are levied a tax based on the income range prescribed by the Income Tax department of India.

 

  • How can I legally save income tax in India?

You can save taxes legally in India by opting for various exemptions and deductions prescribed by the income tax department of India.

 

  • How is tax calculated?

Also Read: How to calculate income tax and TDS like an expert

Tax calculations are based on slab rates defined in the old or the new tax regime so now you can opt for either the new tax regime or the old one to calculate taxes based on slab rates.

 

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top ten income tax savings tips

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