At the end of every financial year, many tax payers find investments to save their taxes. The Indian Income Tax Act allows for certain deductions which can be claimed to save tax at the time of filing of income tax return by Taxpayers. Here are 8 smart income tax saving options to help you to reduce your tax
1.) The most popular Sec80C :
Section 80C allows you deduction upto Rs. 1.50 lakh. These are available to an Individual or a HUF. The deduction is allowed for various investments, expenses and payments, which are as follows;
- Investments in PPF.
- Employee’s share of PF Contribution.
- Purchase of NSCs.
- Life Insurance Premium Payment.
- Children’s Tuition Fee Payment.
- Principal Repayments on Loan for purchase of House Property.
- Investment in Sukanya Samridhi account. (newly added in the finance act 2015)
- ULIPS or Unit Linked Insurance Plan
- Investment in ELSS.
- Sum paid for securing Deferred Annuity.
- Sum deposited in Five Year Deposit Scheme in Post Office.
- Amount deposited under Senior Citizens Saving Scheme.
- Subscription to any notified securities/notified deposits scheme.
- Contribution to notified Pension Fund set up by Mutual Fund or UTI.
- Sum paid as subscription to Home Loan Account Scheme of the National Housing Bank.
- Subscription to deposit scheme of a public sector, company engaged in providing housing finance.
- Contribution to notified annuity Plan of LIC.
- Subscription to equity shares/ debentures forming part of any approved eligible issue of capital made by a public company or public financial institutions.
- Subscription to any notified bonds of NABARD.
To know more about sec 80C visit http://www.finmart.com/blog/section-80-c-tax-planning-tool/.
2.) Home loan : If you have taken a Home Loan, you are allowed to claim deduction for repayment of principal amount of home loan u/s 80C. Moreover, you are also allowed to claim deduction of interest paid on home loan u/s 24.The maximum deduction allowed in some cases is Rs. 2,00,000 and in some cases there is no maximum limit of claiming this deduction for payment of interest on home loan. Tax planning for the purpose of saving tax by taking a Home Loan is highly advisable as the Deduction allowed for repayment of home loan can be claimed under 3 different sections resulting in huge tax savings to the taxpayer.
3.)Deduction on medical insurance sec 80D, 80DD & 80DDB :
Medical Insurance expense gives you the deduction, over and above the 1.5 lakh limit. You can save tax for the health insurance premium of your family and dependent parents. 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.
Section 80DDB provides for Income Tax Deduction under Chapter VI-A for payment of medical treatment of a person suffering from a specified disease. The deduction under Section 80DDB is allowed only to Individual and HUF.
4.)Forming HUF :
A very effective and legal way advised by chartered accountants to save tax is HUF i.e. Hindu Undivided Family. As these are joint incomes and not Individual Incomes, these incomes cannot be taxed in the hands of any specific individual and are therefore taxed in the hands of the whole family. As these are taxed in the hands of the family, the family has a separate PAN Card as compared to Individual members of the HUF who also have a separate PAN Card. Basically the logic behind forming an HUF to save tax is to avail the benefit of an extra PAN Card legally. As the Income of the Family is not taxed in the hands of any specific Individual, a new PAN Card is allotted to the HUF and Tax would be paid by the Family using this PAN Card. As a new PAN Card would be allotted to the whole family, it will also enjoy the benefits of income tax slab rates i.e. Income would be Tax Free up to the specified limits and would then be taxed progressively at 10%, 20% & 30% resulting in tax saving.
5.)Additional deduction u/s Sec 80CCD(1B)
For financial year 2015–16 or assessment year 2016–17, this new section provides for additional tax deduction for amount contributed to NPS of up to Rs 50,000. So for AY2016–17, total deductions under Section 80 are available up to Rs 200,000.
If a taxpayer has taken an education loan for the higher education of himself or spouse or children or the student of whom he is the legal guardian, he can claim deduction under Section 80E and save taxes.This deduction is only allowed for the repayment of interest and not for the repayment of principal amount of education loan. There is no maximum limit for claiming deduction under section for the repayment of interest on education loan. Deduction under Section 80E is only available for Individual taxpayers and not to HUF.
If a taxpayer makes a donation for charity, social or philantrophic purpose or makes a contribution towards National Relief Fund, then this donation can be claimed as a deduction u/s 80G of the Income Tax Act.The Finance Ministry has pre-specified the organisations to which the taxpayer can make the donations and deduction allowed depends on the purpose for which the donation has been made.In some cases, 100% of the donation made is allowed to be claimed as a deduction whereas in certain cases only 50% of the donation made is allowed to be claimed as a deduction for the purpose of saving taxes.Donations made in kind are not allowed to be deducted. Only the deductions made through cash or cheque are allowed to be deducted.For deductions made through cash, only Rs. 10,000 would be allowed to be claimed as a deduction. For claiming deductions above Rs. 10,000, the taxpayer would have to make the donation through cheque.
8.)Allowances for salary individual
Restructuring your salary may not always be possible. But if your company permits, or if you are on good terms with your HR department, restructuring a few components could reduce your tax liability
- Opt for food coupons instead of lunch allowances, as they are exempt from tax up to Rs 60,000 p.a.
- Include medical allowance, transport allowance, education allowance, uniform expenses (if any), and telephone expenses as part of salary. Produce bills of actual expenses incurred for these allowances to reduce tax.
- Opt for the company car instead of using your own car, to reduce high perquisite taxation.