Taxes are unavoidable. While it is a legal obligation to pay taxes, there are innovative ways to reduce your tax outgo. Regardless of your job or the source of your income, understanding tax saving options can help you keep more of your hard-earned money while complying with tax laws. This blog post will discuss some popular ways on how to save tax in India.
List of tax-saving options under different sections
Section 80C of the Income Tax Act offers a wide range of investment options and eligible expenses that help reduce your taxable income, while encouraging savings and investments. Let’s look at some of the best tax-saving options under Section 80C:
What is Section 80C?
Section 80C of the Income Tax Act allows individuals and Hindu Undivided Families (HUFs) to save tax if they invest money in specific approved options. Under this section, taxpayers can claim deductions of up to ₹1.5 lakh in a financial year..
Several tax-saving investments, savings, and insurance options available under 80C help taxpayers save on taxes. Let’s explore a few popular ones:
Equity Linked Savings Scheme (ELSS)
Equity-Linked Savings Scheme (ELSS) is a mutual fund that invests primarily in equity markets. It has a 3-year lock-in period. Investments in ELSS up to ₹1.5 lakh can be claimed for tax deduction under 80C.
Public Provident Fund (PPF)
Public Provident Fund (PPF) is a government-backed savings scheme available at most banks and post offices in India. To promote long-term investment, PPF has a tenure of 15 years, and contributions to PPF can be claimed for exemption under 80C, up to the limit of ₹1.5 lakh. It offers a safe and guaranteed investment avenue, and the interest earned and the returns are tax free.
National Savings Certificate
National Savings Certificate (NSC) is another popular income tax saving scheme from the government of India. It offers an attractive fixed interest rate of 7.7% per annum. The instrument has a lock-in period of five years and offers safe and guaranteed returns to conservative investors. Unlike PPF, the interest earned from NSC scheme is taxable, but the principal amount invested qualifies for deduction under 80C.
Tax-Saver Fixed Deposits (FDs)
Tax-Saver Fixed Deposits (FDs) are special fixed deposits banks offer investors to help them save taxes. They come with a five-year lock-in period, and subscribers to this scheme can avail a tax deduction of up to ₹1.5 lakh with five-year tax-saver FDs. However, interest on tax-saver FDs is taxable. While the interest rates of this scheme are lower than PPF and ELSS, they offer the safety of capital.
Senior Citizens Savings Scheme (SCSS)
Senior Citizens Savings Scheme (SCSS) is designed for individuals aged 60 and above. It offers an interest rate of 8.2% per annum, higher than regular savings schemes. SCSS has a tenure of five years which is extendable by three years. Interest earned from SCSS schemes is taxable, but the investment amount qualifies for deduction under 80C.
Sukanya Samriddhi Yojana (SSY)
Sukanya Samriddhi Yojana (SSY) is a central government savings scheme for girl children to secure their future. The account can be opened by a girl’s parents or guardian before the child turns 10, and the scheme matures when she turns 21. It offers an interest rate of 8.2% per annum, with tax-free returns. The maximum annual investment of ₹1.5 lakh qualifies for deduction under 80C.
Employee Provident Fund (EPF)
The Employee Provident Fund (EPF) is a popular tax-saving investment scheme among salaried individuals. It is a government-run retirement savings scheme in which employees contribute to their EPF account, and the amount deducted qualifies for exemption under Section 80C. EPF applies to organizations that employ 20 or more employees. However, the EPF deduction falls under the overall ₹1.5 lakh limit allowed under Section 80C.
Home loan repayment
Repayment of the principal amount of a home loan qualifies for deduction under Section 80C up to a limit of ₹1.5 lakh per financial year. The interest paid on the home loan is also eligible for tax saving under Section 24 (b). Home loan tax saving is applicable for loans taken for purchasing or constructing a residential property.
Tuition fees
Parents can claim a deduction under 80C for tuition fees paid for their children’s education. However, this only applies to a maximum of two children per parent, and the fee must be paid to educational institutions in India.
A few tips to save taxes in India
Smart money management involves smart tax saving investments, leveraging tax deductibles, and knowing how and when to use them. Let’s look at some tips to save taxes effectively in India:
- Make full use of Section 80C by investing in eligible options like ELSS, PPF, and NSC.
- Buy health insurance for yourself and your family to claim deductions under Section 80D.
- Donate to eligible charities to claim deductions under Section 80G.
- Keep proper documentation for all tax-saving investments and expenses to ensure a smooth filing process.
- Using deductions correctly ensures you claim all eligible deductions when you file your tax returns.
Tax saving options other than Section 80C
Regarding tax saving, most taxpayers tend to focus on Section 80C. However, there are several other ways to maximize tax savings. We have compiled a list of tax-saving options for taxpayers:
Section 80D: Health insurance premium
Section 80D offers tax deductions on health insurance premiums, encouraging people to secure health coverage while saving tax. You can claim a deduction for the premium paid for health insurance policies for yourself, your spouse, your children, and your parents. Section 80D offers a tax deduction of up to ₹25,000, while it is ₹50,000 for senior citizens (if the insured is above 60 years) in a year.
Section 80E: Interest payment for education loan
Under Section 80E, you can get a tax deduction on the interest you pay for an education loan availed for yourself, your spouse, or your children. The benefit is available for up to 8 years, starting from the year you begin repaying the loan.
Section 80G: Donations to charity
Donations made to approved charitable institutions qualify for tax deduction under Section 80G. However, it should be noted that the tax deduction depends on factors such as donation type and organization.
Section 80GG: House Rent Allowance (HRA)
Employees who don’t get House Rent Allowance (HRA) but pay rent for their home, can claim a deduction under Section 80GG. The deduction is the lowest of: ₹5,000 per month, 25% of total income, or rent paid minus 10% of salary. However, the individual should not own any residential property at the place of employment or business.
Section 80RRB – Royalty from patents
Section 80RRB allows Indian residents to claim a tax deduction on royalty income from patents registered after April 1, 2003. The deduction can be up to ₹3 lakh per year or the actual royalty income, whichever is lower.
Conclusion
Saving taxes is fun if you plan wisely. With awareness and right preparation like choosing the right investments, taking advantage of deductions, and learning about various exemptions available, you can reduce your tax outgo significantly. This will allow you to save more money while practicing healthy investment habits and securing your future. Do your research diligently and plan your tax savings to maximize your earnings.
