Tips on How To Save Income Tax

Tips on how to save income tax
Tips on How To Save Income Tax

Under the Income Tax Act there are no of deductions are available by claiming those deduction you can reduce you income tax liability. But for this you must have knowledge of all the deductions which you can claim and accordingly you have done proper tax planning at the beginning of the financial year.

In this post I am going to give tips on how to save income tax. Following are the some ways by which you can save income tax.

1. Save Tax through tax free allowance

Following are the tax free allowance to the extent actually incurred by you. But for this you have to give the proof that you have actually incurred these expenses. You can get more details on various tax exempted allowance from my blog on the topic Tax Exempted Allowances Under Income Tax Act.

Tax Free Allowances

·         Conveyance
·         Driver
·         Newspaper, Books and Magazine
·         Medical Treatment
·         Uniform
·         Telephone and Mobile
·         Personality Development
·         Office Entertainment

 2. Tax saving through Home loans:

You can claim deduction for both interest and principal payments towards a home loan. The principal amount paid as part of equated monthly instalments (EMIs) of a self-occupied house is eligible for deduction up to Rs 1.5 lakh under Section 80C. The construction should be done within three years from the end of the financial year in which the loan is taken. The deduction is reversed if you sell the property within five years of purchase.
The interest component can be used to claim up to Rs 2 lakh deduction under Section 24B if the house is ready and in your possession. If you have rented out the house, you can claim the entire interest as deduction from the rental income.

The detailed information on Tax Benefits on Home Loan under Section 24 and Section 80Ccan be viewed in my another blog on topic Income Tax Saving Through Home Loan. 
3. Save Tax through HRA
You can deduct the lowest of these from gross income as HRA deduction.
·         Actual HRA given by the employer
·    50% of the basic salary plus DA if the employee is situated in Delhi, Mumbai, Kolkata and Chennai. Else, 40% of the basic salary plus DA.
·         Actual house rent paid by you, minus 10% of basic salary+DA.
To get the HRA deduction you have to give rent receipts to your employer. If your total rent of a financial year exceeds 1 lakh then you need to give copies of registered lease agreement and copy of the landlord’s PAN card.
You can also give the rent to your parents. But you have to complete all the formalities of lease as stated above.

4. Tax exempted investments u/s 80c

Certain investments give your tax rebate. These investments come under section 80C of deductions. The amount invested is deducted from your taxable income. Many of such investments come under EEE category. It means you need not to give tax at the time of  investment, earning and redemption. However, There is a maximum limit of 1.5 lacs for 80C deductions.
 List of Investments Which Saves Tax

Unit-linked insurance plans, or Ulips, can be used to get insurance as well as equity exposure. Ulip investments are eligible for Rs 1 lakh deduction under Section 80C. The maturity proceeds are tax-free.

EPF Contribution

Employee Provident Fund is a retirement saving instrument. Contribution to the EPF is mandatory for the employees of organised sector if their bic salary is less than Rs 15000/month.
he employer also contributes equal amount in the EPF account of employee. The contribution to EPF by employer is tax exempt, while contribution  by the employee is tax deductible under section 80C.

Deposit in PPF account

PPF account is also a long term saving scheme by the government. Anyone can open the PPF account in SBI, post office or other banks. The PPF account gives tax deduction under section 80C.

Investments in tax saving mutual funds i. e. Equity Linked Saving Scheme (ELSS)

Equity linked saving scheme are diversified mutual fund scheme which have lock-in period of 3 years. The ELSS invests in share market. It has potential of highest return.

Sukanya Samriddhi Account

This is a government saving scheme for the girl child. It gives highest return among all the small saving schemes. The investment is locked till your girl child turns 18. The investment and maturity amount is tax-free. For the detailed features of Sukanya Samriddhi Yojana you may visit my blog on the topic Income Tax Saving Through Sukanya Samriddhi Yojana

Tax Saving Fixed Deposit

Tax saving Fixed deposit is like any other fixed deposit of bank. The only difference is the lock in period of 5 years. The interest earning of tax saving FD is subject to tax.

National Saving Certificate (NSC)

It is post office small saving scheme. The national saving certificate is issued for 5 years. The interest rate of this scheme is 8.5%. the NSC gives tax benefit under section 80C. The interest is subject to tax.

Senior Citizen Saving Scheme

This is also an small saving scheme by the government. It is designed for senior citizens. This scheme gives regular income. The interest rate of senior citizen saving scheme is better than NSC or PPF. The retired defence personnel can subscribe this scheme at any age.
5. Expenses Eligible For Tax Saving
Under the limit of 1.5 lakh deduction there are some expenses as well.
·         Tuition fees for self and children
·         Life Insurance Premium.
·         Home loan principal paymentHome loan EMI has two-part, principal and interest. Principal part gives tax saving benefit under section 80C. Know more about the tax benefit of home loan
These expenses and above mentioned investment in aggregate should not exceed 1.5 lakh limit.

6. Leave Travel Allowances and Medical Expense

Some personal expenses are also eligible for exemptions. These Expenses are deducted from your gross salary. Your employer may give you part of your salary as medical allowance. Check with the HR department.
If you produce an actual bill of medical expenses, this allowance becomes tax-free. So, Start collecting medical bills. However, it is limited to Rs 15,000 in a financial year. You can give receipts of medical expense of your dependents as well.
Your employer can give you leave travel allowance as well. You are entitled to tax-free leave travel allowance.
·         It is also limited to two times in a block of 4 years.
·         The travel should occur while you are on the leave.
·         It should be within India.
·         Travel should be from the shortest route.
·         You can claim the maximum for AC-I of the train journey and economy class of air travel.

 7. Medical Insurance Deduction

Medical Insurance expense gives you the deduction, over and above the 1.5 lakh limit. You can save tax for the health insurance premium u/s 80D of your family and dependent parents. Also, health checkup can also give you tax saving. You can deduce these expenses from your total taxable income.

·         Up to Rs 25,000 for the health insurance of self and family. You can also include health checkups of up to Rs 5,000 within this limit.
·         Up to Rs 25,000 for the health insurance of parents. If they are above 60 years, This limit goes up to 30,000.

8. Set Off Capital Gain

Salaried people need to give capital gains tax on their investments. Shares attract only short-term capital gains tax while property and gold attract both short and long term capital gains taxes. However, you can set off your capital gain  from an investment with the capital loss of another investment. Note, you can set off short-term capital gain only with short-term capital loss and long term capital gain with long term capital loss only.
You can also carry forward your capital loss up to 8 years. This will give a fairly good chance of tax saving on account of capital loss. Suppose you incur trading loss in shares. This loss can be carried forward up to seven years. In subsequent years your trading profit can be set off with this big loss.

9. Charity

You can save tax on your donations. However, not every charity gives you 100% tax saving. Donations to  the PM relief fund, some notified NGO and political parties can give you the 100% tax benefit. You can also donate to scientific institutions and religious body and claim tax rebate.

10. Diseases

Expenditure on treatment of taxpayer or his/her dependants for certain diseases can be claimed as deduction up to Rs 40,000 under Section 80DDB. From 2012-13, expenses on treatment of senior citizens above 60 will be deductible up to Rs 60,000. This is for treatment of specified diseases. You cannot claim this deduction if your employer or an insurance company reimburses the expense.

Under Section 80U, individuals suffering from disabilities such as blindness, hearing impairment and mental illness can claim a deduction of Rs 50,000. If the disability is severe, one can claim a deduction of Rs 1 lakh. If a taxpayer has a disabled dependant, a deduction of Rs 50,000 is allowed. If the dependant has a severe disability, the deduction allowed is Rs 1 lakh.

11.  Small Interest

From this financial year, you do not have to worry about paying tax on interest earned on your savings accounts, provided it does not exceed the standard deduction of Rs 10,000. This deduction is available under Section 80TTA to individuals and Hindu Undivided Families.

12. Income Tax Rebate Under Section 87A

Resident Individuals whose total income does not exceed 5 Lakh rupees for 2016-17/ FY 2015-16, will get the maximum rebate of Rs.2000 from the Income Tax and in case if his tax liability is less than Rs.2000 than the rebate upto the amount of his total income tax liability.
Last but not the least to avoid the hassles of last minute tax planning, give your employer details of loans and tax saving investments beforehand, to prevent any excess deduction Check the Form 16 received at the end of each year from your employer thoroughly It is important to start your tax planning well before 31st March, and to file your returns before the 31st of July each year
I hope this post will help you to reduce your income tax liability and save your hard earned money. Give your opinion on my this post and in case if you have any query, Please feel free to ask. I will try my best to reply.