As per the old tax regime, the lower limit to pay income tax on salary for individuals below 60 is set at Rs. 2.5 lakhs. However, for those above the lower limit is set at Rs. 3 lakhs, and for super senior citizens, i.e., those above 80 the limit is Rs. 5 lakhs. However, under the new tax regime, the lower limit for tax is set at Rs. 2.5 lakhs regardless of the taxpayer’s age.
Taxes tend to erode one’s annual income, this makes it crucial that individuals opt for measures and plan their taxes better. For instance, tax planning is among the most potent ways to save on taxes and boost annual revenue. Under the provisions of the Income Tax Act, of 1961, individuals can claim tax deductions on different investments, expenses, and savings accumulated within a fiscal year.
That said, let us read along to find out how to save income tax and more.
Tips to Save on Income Tax
In case you have been wondering how to save income tax – follow these tips to achieve the same and accelerate your savings over the years.
Tip 1: Avail of a Home Loan
Individuals who are planning to purchase a home can consider applying for a home loan. Notably, Section 80C of Income Tax Act extends tax benefits for home loan owners.
Today several government-backed housing schemes such as Delhi Development Authority Housing Scheme and Pradhan Mantri Awas Yojana aim to make building a home more accessible to common people.
Besides the housing scheme, the government also allows individuals tax benefits under Section 80C and 24(b) to help lower the monetary burden of those planning to buy a house.
- Exemption on principal loan amount
Home loan borrowers are eligible to claim deductions of up to Rs. 1.5 lakh under Section 80C. The said provision entitles borrowers to claim a deduction on the annual income they spend to repay the principal amount.
- Exemption on the loan interest amount
Additionally, Section 24(b) offers tax exemptions of up to Rs. 2 lakhs on the interest portion of their home loan annually.
In addition to the exemption of Rs. 2 lakhs, taxpayers can claim up to Rs. 50,000 annually under Section 80EE on the interest component of a residential home loan. Taxpayers can continue to claim this tax deduction benefit until they repay the home loan.
- Exemption on rented-out property
In case the home loan borrowers rent out their newly purchased house the entire interest is exempted from tax computation. Notably, those who purchase a property to build a house can also benefit under the provision of Section 24(b) only if they manage to complete the construction within 5 years.
- Exemption for first-time home buyers
First-time home buyers are entitled to claim an additional deduction on their tax liability under Section 80EEA.
Tip 2: Invest in Government Schemes
Several government-mandated plans extend high returns on investments along with tax waivers. One can claim exemptions on their yearly income for a maximum of Rs 1.5 lakh spent on investments under Section 80C of the Income Tax Act. This means they can generate earnings and protect the same from tax liability by investing in tax-saving investment instruments.
Individuals can claim tax exemptions if they invest in these savings and income tools –
- Senior Citizen Savings Scheme
- National Pension Scheme
- Sukanya Samriddhi Yojana
- Public Provident Fund
- National Savings Certificate
- Unit Linked Insurance Plan
- ELSS Funds
However, make sure that the investment savings and income plans match your financial goals and risk appetite before investing in them.
Tip 3: Purchase a Health Insurance Policy
Taxpayers can claim a deduction under Section 80D on the part of the yearly tax-deductible earnings they spent on health insurance premiums. Depending on the age of the insured, different sums are exempted from income tax calculations.
A medical insurance premium of Rs. 50,000 can be claimed under the said ITA provision. Out of Rs. 50,0000 – Rs. 25,000 can be claimed for self-spouse and kids
and Rs. 25,000 for dependent parents who are below the age of 60.
An insurance premium paid up to Rs. 1,00,000 annually can be claimed for deduction if the insured is a senior citizen. However, if the senior citizen is not covered under any health plans then they can claim a maximum of Rs. 50,000 as incurred medical expenses.
Tip 4: Get a Life Insurance Policy
Section 80C of the Income Tax Act allows exemptions on premium payments, and Section 10(10D) accounts for the sum guaranteed upon maturity or early death of the insured, whichever comes first.
- For insurance policy bought post-April 1, 2012
Under Section 80C, if an insurance policy is bought after April 1, 2012, the tax benefit of a maximum of Rs. 1.5 lakh can be claimed on the amount paid on yearly premiums can be claimed if the sum is not more than 10% of the sum assured.
- For insurance policy bought pre-April 1, 2012
If the life insurance policy was obtained before to April 1, 2012, the insured can raise a claim Under Section 80C. However, the cumulative premium payments must not exceed 20% of the sum guaranteed.
- For the purchase or renewal of a policy
Section 80CCC permits tax exemptions of a maximum of Rs. 1.5 lakhs on the purchase or renewal of life insurance coverage, as well as on annuity payments paid from monthly salary. However, it must be noted that only select pension funds under Section 23AAB are eligible for tax exemptions of a maximum of Rs. 1.5 lakhs under Section 80CCD(1).
Besides these, note that the interest component paid on an education loan is also eligible for tax deduction under Section 80E. Individuals can also claim taxes under Section 80G if they made any charitable donations to notified institutes.
Using these strategies and investment options taxpayers can save a lot annually. However, it is important that besides knowing how to save income tax, individuals should also find out about how to make the most of these provisions individuals should find out which are applicable to them and claim the same accordingly.
Also Read: BENEFITS OF INVESTING IN DERIVATIVES