Every tax-paying individual looks for various ways to lower their tax liability. One of the best ways to achieve this is to avail tax deductions associated with certain expenses and investments under the various sections of the Income Tax Act.
This article explores the various ways to lower your tax liability as per the sections of the Income Tax Act.
Also read: A Step by Step Guide to Preparing Your Income Tax Return
What is Income Tax?
Income Tax is defined as the sum of money charged on an individual’s or a business’s annual income within a financial year. The Income Tax Act of 1961 lays down the rules and regulations for calculating, collecting, and assessing income tax. Every tax-paying individual has to submit an ITR and can claim a return if applicable.
This act also comprises certain deductions and exemptions that can be applied to lower the tax liability within a financial year.
What Are the Various Ways to Save Income Tax?
Go through the following section to know the different ways on how to save income tax in India:
- Educational Loan
Under Section 80E of the Income Tax Act, people can save income tax by taking out educational loans for higher studies for themselves, their spouse, or their children. The taxpayers can save up and claim a deduction on the loan interest. The best thing is that the deductions are not limited.
- Deductions Under Section 80CCC, Section 80C, and Section 80CCD
Majorly there are 3 sections, Section 80CCC, Section 80C and Section 80CCD, that allow Indian citizens to save up and claim deductions. The following financial tools can help Indian citizens save income tax to as much as ₹1.5 Lakhs:
- National Saving Certificate: This is done for a time period of 5 years and offers an interest rate of 6.80%.
- Sukanya Samriddhi Yojana: This applies only to parents of a girl child below the age of 10 years. Its tenure is until the girl gets married after 18 and offers an interest rate of 7.60%.
- National Pension System: This falls under Section 80CCD, and a deduction of up to ₹1.5 Lakhs can be claimed through investments in the NPS scheme.
- LIC Premiums: Owing to the 10-fold coverage of animal premiums, LIC premiums can help save income tax.
- Tuition Fees: Tax deductions can be claimed on the grounds of tuition fee payment for children.
- Senior Citizen Saving Scheme: Contributions to this scheme are also limited to ₹1.5 Lakhs and are available to people over 60 for five years.
Generally, the tax benefit on Term Insurance can be claimed under three sections of the Indian Income Tax Act: 80C, 80D, and 10D. Section 80C allows you to avail of a deduction of up to ₹1.5 Lakhs owing to the premiums of your term insurance plan, such as ULIP, ELSS, and PPF.
Section 80D offers a much less generous deduction, which amounts to ₹25,000 and can be claimed only on term insurance plans associated with critical illness coverage. Hence, this section is only applicable to health insurance plans.
Also read: ITR benefits on term Insurance
Lastly, according to Section 80D, the amount of money received after a policy’s maturation or the policyholder’s death shall remain tax-free.Also, if the received amount is more than ₹1 Lakh, a TDS of 1% is applied only if the policyholder has a PAN Card.
- Mutual Funds
Investing money in Mutual Funds and Shares is one of the best ways to save Income Tax. As per Section 80CCG, Indian citizens earning below ₹12 Lakhs are entitled to additional deductions only if they invest their money in shares of some specific companies and some chosen mutual funds.
- Leave Travel Allowance
The taxpayers will be subjected to tax-free LTA if their employers provide them with LTA. It can be claimed twice within a time period of 4 years. Travelling within India during this leave period is necessary to claim Leave Travel Allowance and can take their spouse and children as well.
- Donations
Donations to the National Relief Fund can help people save income tax by claiming deductions under Section 80G. The NGO should provide the appropriate certificate for the taxpayer to use. The deductions can also be claimed if the donations made to political parties meet the criteria of Section 80GGC.
- Capital Gains
If a taxpayer owns any asset over 3 years, that should be counted as a long-term capital asset. They can also save income tax through capital gains, provided that the gains come from selling long-term assets and then reinvesting them in something specific.
- House Rent Allowance
House Rent Allowance is another way to save income tax in India under section 80GG. It is deducted from the income of Indian citizens. However, if the total rent exceeds ₹1 Lakh within a financial year, the house owner’s PAN Card and other documents, such as the Lease Agreement, must be produced.
Also read: How to Save Your Income Tax through Investment in Real estate
All these investments help you save income tax up to a certain significant amount within a financial year and provide knowledge about the various government schemes and plans. However, ensure the submission of the ITR form every year and avoid unnecessary fines.
