It becomes challenging to pay income tax at the end of the financial year for most people. We all are familiar with the saying, “A penny saved is a penny earned”.
It is a legal and moral responsibility for every citizen to pay taxes on one’s income. Although, sometimes taxes may seem like a burden and one may feel like reducing it.
Everyone looks for some ways or others to save on taxes. So if you want to save yourself from unnecessary financial stress and taxes then this article will definitely help you with some of the best ways to save income tax.
1. Buy a Health Insurance Policy
In India, medical costs are on a rise, and no doubt health insurance is becoming a necessity. At times of such failing health conditions, such insurance policies reduce the financial strain of individuals and their respective families too.
Thus the government has extended tax benefits for individuals to avail themselves of such insurance policies. Under section 80D, individuals can claim a tax deduction against premiums paid towards a spouse, dependent parents, dependent children, and health insurance policies for themselves.
It is advisable to buy a health insurance policy for everyone in your family.
2. Take an educational loan or invest in education
A major portion of our income goes to children’s education. The pressure of rising school fees and planning the future course of education for children can be a burden for parents, especially the young ones.
But one can offset the rising costs of education and save money by investing in your child’s education.
There are options such as,
- Under Sec 80C, one can buy a child insurance plan whose premiums are tax exempted.
- Under Sec 80C, one can also take educational loans which are also exempted from tax.
- Under Sec 80C, parents can claim a tax deduction of up to Rs 1.5 lakh for the tuition fee paid for their children’s education.
3. Take a home loan
One of the best ways to save tax is by taking a house loan as it provides several deductions such as :
- Under Section 24B, one can get a deduction of up to Rs 2 lakh on the interest repayment.
- Under Section 80C, ordinarily one gets a deduction up to Rs 1.5 lakh on a home loan on the interest repayment.
- Under Sec 80C, one can earn exemptions up to Rs 1.5 lakh and also gets the option of pre-paying the principal. Thus, avoid having to buy more tax savers.
- Under Sec 80EE, one can be eligible for a further tax deduction of Rs 55,000 based on the property, the amount one borrows, and the year of loan sanction.
- Under Section 80 EEA, a first-time homeowner can claim an additional reduction of their annual tax liability.
- Under Sec 80 EEA, one can be eligible for further tax deductions of Rs 1.5 lakh on one’s loan interest repayment.
Some of the commonly used investment avenues under Section 80C are :
- PPF- Public Provident Fund.
- EPF- Employees’ Provident Fund.
- ELSS- Equity-linked savings scheme mutual funds.
- NPS- National Pension System.
4. Park your money in government schemes
Under Section 80C, individuals can claim up to Rs 1.5 lakh spent on such investments. Thus, government schemes offer high returns on total investment along with tax waivers.
Therefore, tax exemptions can be availed by investing in tools such as :
- SSY- Sukanya Samriddhi Yojana.
- SCSS- Senior Citizens Saving Schemes.
- NPS- National Pension Scheme.
- PPF- Public Provident Fund.
5. Donate to charity
Under Section 80G, it is eligible for tax waivers to donate cash to specific organizations amounting to Rs 2,000. One can enjoy complete or partial tax exemptions, on the other hand, Wire and bank transfers, respectively.
Under Sec 80GGA, one is eligible to enjoy deductions if the donation is being made to an organization facilitating rural development or scientific research.
6. Support a political party
The income tax Act of 1962, Under Section 80GGC, is eligible for tax waivers to donate to political parties or contribute to electoral trusts.
The Representation of People Act of 1951, Under Sec 29A, the amount donated to preferred political parties will be exempted from any income tax calculations.
Therefore, cash deposits are not allowed and can be made through wire or bank transfer.
7. Keep some money in your saving account
Under Sec 80TTA, interest on savings accounts up to Rs 10,000 is tax-free and under Sec 80 TTB, both FD and savings account interest limit is up to Rs 55,000 for senior citizens. Thus, this is probably the easiest deduction that individuals can claim.
8. Invest in market-linked instruments
Market-linked instruments help to stay invested and are aligned with financial goals. People whose premiums are locked in for three years and are lower than Rs 1.5 lakh are exempt from paying tax on ELSS and ULIP.
Hence, it is time to shift from traditional fixed saving schemes to various tax-saving insurance like NPS, ELSS, ULIP’s, etc and such instruments get tax rebates from capitals too.
9. Start a retirement plan
In a year of several financial ups and downs, it is never a bad idea to start planning for your retirement rather than leaving it for later may result in lower reserves. This is a good year as under Sec 80C, buying a suitable pension plan offers premium deductions too.
You can also enjoy the dual benefit of life coverage with market exposure with tax-saving insurance plans like ULIPs as it helps you to save funds for your retirement and deductions for premiums paid too.
10. By paying rent
Another way of saving tax is by paying rent to the landlord if you’re living in rented accommodation. If you receive a house rent allowance, then Under Section 10(13A), one can claim an exemption for the rent paid as per provisions.
And in the case where no HRA is received by the employee, then Under 80GG Act, a deduction can be claimed for the rent paid.
In conclusion, we hope that the above points will help you to save your income taxes and reduce your burden.