In India, Income Tax is the major source of revenue for the government and it is governed as per the provisions of Income Tax Act 1961. In order to give relief to the tax payers and to promote habit of saving government has made available many Investment options that allow an assessee to save Income tax. Every taxpayer is looking for “how to save Income Tax in India”, thus this article provides popular ways to save tax.
Let’s discuss the popular ways to save “Income Tax” in India.
Deduction Under Section 80C of Income Tax Act 1961
Deductions under Section 80C is the most popular tax saving option for an Individual as well as a Hindu Undivided Family.
Deduction under this section includes various investments and expenses, for which an assessee can claim deduction from his income tax liability.
Maximum deduction under this section is allowed only up to Rs 1.5 lakh per annum.
Major Investment under section 80C of the Act are discussed as under:
- PPF: Public Provident Fund (PPF) is a long-term investment scheme with a lock-in period of 15 years at which assessee can get Interest @7-8%, which is exempt from tax. A taxpayer can start investing into PPF with a minimum amount of Rs 500.
Point to be noted: If an account holder is in need of funds, and wish to withdraw before 15 years, the scheme permits partial withdrawals on completing 6 years.
- Tax Saver Fixed Deposit: Tax saver fixed deposit is a type of deposit scheme in which an assessee can get tax deduction under section 80C of the Act and also gets tax-free return between 5.5% to 8%. The minimum deposit amount is as low as One thousand The lock-in period for this deposit is 5 years.
- LIC: Life insurance premium payments are allowed as deduction under Section 80C of the Act. The only condition is the premium must be less than 10% of the sum assured.
- ULIP: Unit Linked Insurance Plans (ULIP) is plans that offer individuals an opportunity to obtain life insurance and invest money under the same plan. Premiums paid toward ULIPs are divided into two parts. One if for risk cover and other is for investing into debt, equity or a combination of both. Premiums are the monthly, biannual or annual payments made by individuals towards their ULIPs.
- NPS: National Pension Scheme (NPS) is a government-sponsored pension scheme. Any Indian citizen between 18 and 60 years can join NPS. Since, NPS is a retirement scheme, and it need to be invested until retirement i.e. up-to the age of 60 years.
- NSC: National Saving Certificates (NSC) is a fixed income investment scheme that an assessee can open easily with any post office. NSC are savings bond scheme that encourages primarily small to mid-income investors to invest while saving on income tax under Section 80C.
- Tuition Fee: Taxpayer can claim deduction against payment of school tuition fees of two children’s.
- Principle Repayment of Home Loan: Principal repayment of home loan is allowable deduction from taxable Income provided the said house property should not be sold within 5 years of its possession.
- ELSS: Equity Linked Insurance Scheme (ELSS) is one of the best tax-saving investment options as it offers comparatively highest return amongst all tax saving scheme, in shortest lock-in period of just period of just 3 years. However risk is also higher in this scheme. A taxpayer can invest a small amount as much low as Rs 100/500 every month. The returns on ELSS are not tax-exempt.
- SCSS: Senior Citizen Savings Scheme (SCSS) is for resident Indian above 60-year age. It requires minimum deposit of Rs 1000. Currently the interest rate on it is 4%.
Apart from deductions under Section 80C there are many other sections, which provide deduction from taxable income to save Income tax.
Major Sections, which provide deduction from taxable income other than section 80C are discussed as under:
- Section 80CCD (1B) – An employee’s own contribution under NPS is eligible for a tax deduction up to 10 per cent of the salary within the overall ceiling of Rs 1.5 lakh allowed under Section 80C. However, individuals can claim an additional deduction of up to Rs 50,000/- under Section 80CCD (1B) which is in addition to Rs 1.5 lakh permitted under Section 80C.
- Section 80D – Under Section 80D a deduction up to Rs 25,000/- (Rs 50,000/- for senior citizen) is available for payment Medical Insurance premium.
- Section 80EE – Deduction up to Rs 50,000/- is allowed on Home Loan Interest under Section 80EE.
- Section 80GG – Rent paid up to Rs 60,000/- is allowed as deduction under section 80GG of the Act, provided a taxpayer doesn’t get House Rent Allowance (HRA).
- Section 80TTA & Section 80TTB – Interest on savings accounts is tax-free up to Rs 10,000/- per year under section 80TTA. This limit is Rs 50,000/- for senior citizens for both FD and savings account interest under Section 80TTB.
- Section 80G – Tax deduction is available on account of charitable donation, provided NGOs to whom donation is made should be registered as per the provisions of Income tax Act and have 80G
Note: content below is just a ‘brief description’ concerned to save tax, highlighting some ‘popular items’ only. This should not to be considered as a “complete” guide on deductions under section 80C-80U of the Income tax Act, 1961.