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Completely Legal Ways of How to Save Tax

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Are you looking forward to some of the best ways to save taxes? If yes, here are legal ways to help achieve your tax saving goal in the easiest and fastest manner.

UTILIZE RS 1.5-LAKH LIMIT

Indian citizens are allowed tax exemptions of up to Rs 1 lac under Sections 80CCD, 80CCC, and 80C. The people falling in the 30% tax slab can save up to Rs 4630,350900 by putting their money in the following tax-saving instruments:

Employee Provident Fund

Indian residents can contribute at least 12% of their basic salary, dearness allowance and retention allowance towards EPF. The exemption comes under Section 80C. As per the guidelines, premature withdrawal is permitted only under terms listed by the government. If the EPF amount is pulled out before 5-years of scheme subscription, the tax advantages hat have been gained are taken back.

Public Provident Fund:

Indian residents can invest in Public Provident Fund and get income tax deduction. They can also contribute on behalf of an HUF. PPF offers interest of over 8% annually, and this interest is tax-exempted.

National Savings Certificate:

You can invest in five- and 10-year NSCs. Five-year NSCs are offering 8.5% a year while 10-year NSCs are paying 8.8%. The interest earned is taxed. There is no restriction on the investment amount, though tax deduction can be claimed only up to Rs 1.5 lakh.

Senior Citizen Savings Scheme:

People above 55 years who have opted for voluntary retirement or people above 60 years can invest in Senior Citizen Savings Scheme. The maturity period is 5-years, which can be extended by another 3-years. The cap on Investment limit is Rs 15 lakh, and the interest offered by this scheme is over 9% annually. However, the interest received is taxable.

Post office/Bank deposits:

Investment in the 5-year bank, as well as post-office FDs, is eligible for tax exemption. The interest on these safe deposits is taxable.

Life insurance schemes:

Investment in life insurance plans unit-linked, term plan or traditional endowment with sum assured minimum ten times the yearly premium is eligible for tax exemption within the Rs. 1 lakh limit. Additionally, returns from these insurance plans are not taxed.

Home loan principal repayment:

The principal component of a home loan repayment is tax deductible up to Rs 1 lakh. However, if the property is sold before five years of the purchase, the amount claimed as a deduction is taxed in the year the house is sold.
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Children's tuition fee:

Indian residents can avail tuition fee exemption for educational institutes in India only for the full-time education of 2 children.

Tax-saving mutual funds:

Tax-saving mutual funds are equity mutual fund plans having a lock-in of 3 years. Investment in them is tax deductible up to a limit of Rs 1.5 lakh. Dividends and capital gains are not taxed, and investors can continue with the schemes after the lock-in period.

BEYOND RS 1.5-LAKH LIMIT

The tax deductible limit of Rs 1 lakh seems inadequate, and that is why it is essential to consider other tax-saving alternatives under Sections 80CCD, 80CCC and 80C as well.

Employer's NPS contribution:

If employees have opted for corporate NPS, following which both employer and employee pay 10% of basic salary and DA towards NPS account, the employer's payment against NPS is exempted under Section 80CCE.

Rajiv Gandhi Equity Savings Scheme:

This scheme is meant for first-time equity investors as they can put in up to Rs 50,000 in selected mutual funds and stocks and get a tax exemption of Rs 25,000 or 50% of the amount, under Section 80CCG. However, to claim this deduction, the income should not exceed Rs 12 lakh annually. Investors can get the tax benefit under this plan for three years.

Costs incurred for cure of handicapped dependent:

In case, a person’s dependent relative, siblings, spouse, children, or parents is handicapped, costs incurred towards maintenance and treatment are exempted up to Rs 1 lakh only if the disability is severe. In another case, the tax deduction limit is Rs 50,000.

Health insurance premium:

One can avail exemption for health insurance premium compensated for self, parents, spouse and children under Section 80D. The exemption limit is capped at Rs 320,000 for senior citizens while for others it is Rs 215,000. In the event of health insurance premium payment for parents, a person can additionally avail up to Rs 320,000 deduction for senior citizens. Expenses of up to Rs 5,000 incurred on preventive health checks are deductible under this limit.

Medical expenditure on dependent relative or self:

Up to Rs 40,000 (Rs 60,00 for senior citizens) incurred on the cure of specified diseases suffered by a dependent relative or self is tax deductible. These specified diseases lists include but not limited to, malignant cancer, chronic renal failure, Thalassaemia, and AIDS. There is a requirement to present a certificate issued by a registered doctor to get these deductions.

Deduction for physically challenged persons us 80DD:

A physically challenged person can get up to Rs 1 lakh tax deduction in the event of severe disability and Rs 75 thousand for disability.

Interest repayment on house loan:

The interest given on a loan availed to buy a home for living purpose is tax deductible up to Rs 1.5 lakh annually for self occupied properties. No tax deduction can be availed on under- construction properties. Deductions can be availed for five years after the project completion.

Deduction on house rent:

A salaried person can see a component named Housing Rent Allowance in salary. It is tax exempted when the person lives in a rented property. The deduction is least of the following:

  • Actual house rent allowance allowed by employer,
  • Actual house rent minus 10% of basic salary,
  • 50% of basic salary if the employee resides in a metro city or 40% of basic pay in case of In the event of the HRA component not present in salary, the employee can still avail deduction on the actual rent paid u/s 80GG. It is the minimum of the following:
  • Rent minus 10% of taxable income
  • 25% of the total taxable income
  • Rs 2,000 per month.

Interest remunerated on education loan:

The interest remunerated on the education loan to support higher education of spouse, self or kids is exempted under Section 80E. It covers certain vocational and regular courses. This deduction is permitted for 8-years or till the time interest is paid completely, whichever is lower.

 

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