People always look for moments where they can save money. Especially during these tough times, nobody likes to miss out on opportunities where they can save the money paid by taxes. Different people prefer various ways of doing so. They sometimes just stick to the methods they know and thus miss out on more productive ways to save tax. Hence this article is aimed at those who want to know more ways and means to save money paid as income tax. When you consider how to save income tax, read ahead the 7 ways to save income tax in India.
What is Income Tax?
The portion of the income you pay to the government is the tax on your income, which is called Income Tax. These taxes are the essential instruments for the survival of the states as well as the government. Through these taxes, the government runs the country and helps in the development of various projects for the betterment of the nation like defense, healthcare, transportation, etc. The taxpayers of a country consist of all the individuals, companies, and various institutions. They are inevitable for all who earn and spend money.
Any person with income above the basic exemption limit for the fiscal year is liable to file an income tax return, and here is how you can calculate income tax by the tax calculator. You also have different options to lower your income-tax liability. These are called “tax saving instruments.”
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Here are the 7 ways to save Income Tax in India.
Get Yourself Insured
Reduce income tax on how much money a life insurance policy invests. Section 80C of the Indian Tax Act permits tax deductions on life or term insurance plan premiums and payouts. Your life insurance premiums paid will not be taxed if they are below a total of 1.5 lakhs. Indian Tax Act Section 10(10D) allows for exemption from tax on any payouts received under a life insurance policy.
Secure some future amount
One of the simplest ways to save your money is nothing but the following deduction that any individual can claim under the Income Tax Act. The Savings account receives a tax-free interest up to Rs 10,000 per year falling under Section 80TTA. This limit for senior citizens is decided by Rs 50,000 for FD furthermore the interest on savings account falling under Section 80TTB.
Contribute for Charity
Pursuant to Section 80 G of the income tax act, donations made to specific organizations in cash are eligible for tax waiver amounting to approximately INR 2,000. On the other hand, wire and bank transfers enjoy total or partial tax exemptions, respectively. You are eligible to enjoy deductions under Section 80GGA if you donate to an organization facilitating scientific research or rural development. Partial waivers are granted in the case of cash donations, while transfers made by cheque or draft enjoy full tax waiver.
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Get a health insurance
With the current situation of the disastrous pandemic, the rising cost of medical treatment along with various other factors, availing health insurance becomes a necessity. These insurance policies reduce the financial pressure on individuals and their families when health conditions are failing. Government tax benefits are extended to stimulate individuals to take advantage of these insurance policies, which allows them to obtain quality healthcare for zero or low additional charges at leading medical institutions. Individuals may claim tax deductions in respect of the portion of their annual taxable income spent on premium payments under section 80D. Different amounts are exempted from such calculations of income tax, depending respectively on the age of the insured.
Contribution towards National Pension Scheme
Contributing some amount to NPS is one of the best ways to save tax. Under Section 80CCD a deduction is available for contributions to the NPS up to Rs 50,000. This contribution will help you invest in pension funds for equity and debt so you can build a retirement corpus. This amount can be withdrawn later at age 60.
Investing money in the Government scheme
There are a lot of government-mandated schemes, along with tax waivers, offer high returns on total investments. Pursuant to Section 80C of the Income Tax Act, individuals may claim up to 1.5 Lakh spent on such investments as tax waivers on total annual income. You can take advantage of tax exemptions by investing in the following instruments:
- Public Provident Fund (PPF)
- Senior Citizen Savings Scheme (SCSS)
- National Pension Scheme (NPS)
- Sukanya Samriddhi Yojana (SSY)
If You Live on Rented Premises, Claim Exemptions!
Section 10(13A) provides for tax exemptions under house rent allowance (HRA). In order to benefit from the compensation, your salary break-up must include an HRA component. The total tax exemption on rent paid, however, is calculated as the minimum value of three components which is stated as:
- Total annual rent – the basic salary is 10 percent
- HRA received annually
- 50 percent of the annual salary if the individual resides in a subway town (40 percent for non-metro towns)
If the HRA component is not included in your monthly income, then you can claim tax benefits under Section 80GG on annual rental expenses. The total income tax deductions are calculated against the minimum value of the following conditions:
- Total rent minus the basic salary of 10 percent.
- 25 percent of total gross income.
- Payment of rent up to 5,000 a month.
Therefore, by keeping in mind the above-mentioned points, you can learn how to save Income Tax in India through house rent allowance.
There are many ways to save on your taxes other than the points mentioned above. The amount of gifts and inheritance from a will or property is tax-exempted. When planning your investment, remember that not all kinds of tax savers are the same in terms of the asset class. You should compare the options available and calculate which Income Tax Act suits you. You should take into account the liquidity, safety, and security of the instrument. Your aim should not only be to save on tax but to reach the financial goals you have set for yourself.