How To Save Income Tax Under Various Sections Of The Income Tax Act
Tax planning is the most effective way to raise your net income and reduce your tax liability. The Income Tax Department offers numerous tax deductions for your expenditure, savings, and investments during a financial year. This article will look through the avenues which allow you to save taxes. Keep reading!
How to Save Income Tax?
The following are the various modes through which you can save taxes:
- Purchasing a house
As per Section 24 of the Income Tax Act, you can avail of a tax deduction of up to Rs. 2 lakh for the interest payable on your home loan. Additionally, first-time house property buyers can opt for an extra deduction of Rs. 50,000 from taxable income for the house loan interest component, in accordance with Section 80EE. However, you need to meet the following conditions:
- A house buyer must not possess any other residential property with his/her name registered
- Value of this residential house must be below Rs. 50 lakh
- Loan amount should not exceed Rs. 35 lakh
- A financier must sanction your home loan in the relevant financial year
- Funding higher education
According to Section 80E, interest payable on your education loan is eligible for a tax deduction. You can avail this benefit for 8 years (maximum) or till you pay interest, whichever is earlier.
- Contribution to a charitable trust
Section 80G facilitates a tax deduction for contributions towards specific charitable organisations and relief funds. However, donations for items, such as medicines and food materials, aren’t eligible for tax benefits.
- Receiving HRA
If you stay in a rented house and get HRA (House Rent Allowance) from your company, you can opt for a deduction through Section 10(13A). The minimum of the following will be applicable as tax exemption:
- 40% of your salary if you live in a non-metropolitan city and 50% of your salary if you live in a metropolitan city
- Actual rent payable is above 10% of your salary
- Actual House Rent Allowance received from your company
Here, salary includes basic pay and Dearness Allowance in accordance with your employment terms.
If you don’t possess a residential property or don’t get HRA from your organisation, you can still receive a deduction from your taxable income for rent expenses under Section 80GG. The minimum of the following will be applicable as a deduction:
- 25% of your income in the fiscal year
- 10% of your income subtracted from the rent payable
- Rs. 5,000 every month (Rs. 60,000 each year)
- Buying health insurance
As per Section 80D, a deduction of Rs. 25,000 (maximum) is available for paying health insurance premiums (in any mode except cash) covering you, your spouse, and your children. For senior citizens, this tax deduction limit is Rs. 50,000.
- Purchasing life insurance
Under Section 80C, premiums for life insurance plans qualify for tax benefits. This provision also includes other tax-saving options such as child’s tuition fees, investment in the National Pension System, National Savings Certificates and Public Provident Fund. However, the deduction limit is set at Rs. 1.5 lakh.
How Can Self-Employed and Salaried Individuals Save Taxes?
Apart from the above-mentioned avenues, self-employed and salaried taxpayers can opt for the following ways to save taxes:
- HUF receipts
The Jain, Sikh and Hindu families get the Hindu Undivided Family (HUF) status. As per the IT Department, an HUF is a distinct entity with a separate bank account and PAN that is tax-exempt. As per Section 10(2), an amount that is obtained from such families’ estate or income is exempted from tax.
- Interests from savings accounts
As per Section 80TTA, savings account interests are eligible for a deduction of up to Rs. 10,000. Any amount above this cap will fall under taxable income.
- Educational scholarships
According to Section 80E, awards or scholarships of students fetch tax benefits. There is no exemption ceiling for the amount received as a scholarship.
- ELSS funds
ELSS or Equity Linked Savings Schemes are mutual funds that primarily invest in equity and equity-related instruments. Investments in ELSS are eligible for a deduction of up to Rs. 1,50,000 in a financial year under Section 80C.
- Unit-linked insurance policy
A unit-linked insurance policy denotes a product that offers life insurance and distributes savings into market-based assets. Its asset allocation ranges between equity and debt, offering multiple fund options. After leaving this policy (permitted after at least 5 years) or post maturity, the sum available is tax-free.
Also Read: Differences between open and close Ended Funds
Does Saving Tax Benefits You?
If you can incorporate tax-saving options in your ITR every year, it can be fruitful to you in the following ways:
- Tax-saving investments help to meet your future financial requirements such as retirement, wedding, and higher education.
- They protect individuals’ financial health in the long run and inculcate financial discipline among them.
- Most of the tax-saving instruments are dependable, transparent and legitimate investments since they are government-backed. For instance, NPS (National Pension Scheme) investments help in building a corpus to satisfy your post-retirement requirements.
How Are the Various Sections of the IT Act Important?
The following chart will guide you through some of the vital tax deductions applicable under the different sections of the Income Tax Act, 1961:
| Sections | Tax Deductions on |
| 80C | PPF, NSC, tax-saving fixed deposits, ELSS, ULIPS, home loan principal repayment, child’s tuition fee, life insurance premium, etc. |
| 80CCC | Sum deposited in an annuity plan for a fund’s pension specified under Section 10(23AAB) |
| 80CCD(1) | Contribution of employee in NPS account |
| 80CCD(2) | Contribution of employer in NPS account |
| 80CCD(1B) | Additional contribution in NPS |
| 80TTA(1) | Savings account interest income |
| 80TTB | Interests from the post office and banks (applicable for senior citizens) |
| 80GG | Rent payable when an employer doesn’t offer HRA |
| 80E | Education loan interest |
| 80EE | House loan interest for first-time house buyers |
| 80D | Medical Insurance |
| 80DD | Health treatments of handicapped dependent |
| 80DDB | Health expenditure for diseases mentioned under Rule 11DD |
| 80U | Mental retardation or physical disability |
| 80GGB | Companies’ contribution to political parties |
| 80GGC | Individuals’ contribution to political parties |
| 80RRB | Earnings through patent royalty |
What Are the Other Special Tax-Saving Opportunities?
There are various other common avenues through which you can save your taxes. These are as follows:
- Inheritance through a will and gifts from marriage are eligible for tax exemptions.
- For people engaged in business, food and travel expenses can be filed to save taxes.
- Salaried individuals can get tax benefits using their leave travel allowance.
- Gratuity and medical bills can also reduce your taxes.
- Some companies may restructure an employee’s salary to minimise his/her tax liability.
Also Read: What Are The Best Tax Saving Instruments In India?
Final Word
The Government of India has its own innovative instruments and measures to reduce a taxpayer’s financial burden. However, you must consider the returns, liquidity, and safety of these tax-saving investments before choosing one.
FAQs on How to Save Income Tax
As per Section 24 of the Income Tax Act, house owners can claim up to Rs. 2 lakh (Rs. 1.5 lakh in case you’re filing ITR for the previous fiscal year) as a tax deduction on the interest repayment of their home loan. However, an owner or his/her family will have to stay in this house property. If the house is rented, the total interest can be set aside as a deduction.
The following can be the best tax-free instruments in India:
Investments made through house loan interests under Section 80EE can fetch a deduction of Rs. 50,000 (maximum).
Investments by way of medical insurance under Section 80D can get a tax deduction of Rs. 25,000 (maximum).
Investments specified under Section 80C are eligible for a deduction of Rs. 1,50,000 (maximum).
Through tax-saving investments under Sections 80C, 80D and 24B, an individual can claim up to Rs. 5 lakh tax deduction from his/her taxable income. If you come under the 30% income tax slab, you can save up to Rs. 1.5 lakh.
Form 16 contains the amount of TDS (Tax Deducted at Source) on your salary. You need to furnish these details while filing your ITR. For this, you need to register in the income tax portal. The next task is to generate your Form 26AS. You can download this form from the NSDL-TIN portal. It provides your TDS details on multiple incomes. Make sure to download and fill out the relevant ITR form with the required documents. Once you successfully submit and verify your ITR online, you will have to save a copy for future reference.
If you are a salaried individual with an income below Rs. 10 lakh, you can avail complete tax exemption in the following ways:
Through a standard deduction
If you contribute to NPS, you can opt for an additional tax deduction
Claiming tax benefits for home loan interest
Investing more in health insurance to get a deduction
Exhaust the deduction limit of Section 80C
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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