Individuals or families in any tax band can minimise their taxable income under the Indian tax system using a variety of strategies. These strategies often entail investing in tax-saving devices that qualify for deductions under different parts of the Internal Revenue Code, most notably Section 80C, which covers a wide range of tax deductions. This section of the legislation provides for a yearly deduction of up to Rs. 1.5 lakh on investments.
1. Provisions under Section 80C
In order to encourage savings, the government of India offers a provision to invest Rs. 1,50,000 as per section 80C of the Income Tax Act. Therefore, by investing in tax-saving options under 80C, you end up saving money on income tax as well as make investments for a secure future. Here’s a list of popular investment options to save tax under section 80C.
- National Pension Scheme
- National Savings Certificate
- Public Provident Fund
- Home loan’s principal amount
- Fixed deposit for a duration of five years
- Equity Linked Savings Scheme
- Sukanya Samariddhi account
- Children’s tuition fees
- Premium Paid for Life Insurance policy
2. Tax Deduction In Case of Availing a Home Loan
If you organise your home loan correctly in compliance with section 80C, you can save money on taxes. Section 80C sets a maximum of Rs. 1.5 lakhs for the principle amount, while section 24 sets a limit of Rs. 2 lakhs for the interest amount. Sections 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80CCG, 80G provide tax savings opportunities.
3. Long Term Capital Gains Exemptions
Selling a long term asset and reinvesting the income in tax saving instruments such as those mentioned above may entitle you to claim deductions on the same and reduce the capital gains tax levied on the sale. The asset must be in your possession for a period greater than 3 years to be termed as a long term asset. Gains from equity shares and mutual funds are also tax exempt upto Rs 1 lacs in financial year provided that your ownership has exceeded a period of 1 year.
4. Protecting oneself with Health Insurance
Income tax provisions provide for deductions against premiums paid towards health insurance for self, spouse, dependent children and dependent parents. Hence, one can buy health insurance for oneself and family members to help manage medical expenses in case of health emergencies and at the same time, avail tax benefits for premium paid towards these policies (Rs 25,000 for self, spouse and dependent children; Rs 50,0000 for senior citizen parents, as applicable).
Similarly, if senior citizens are not covered under any health insurance policy, then also they can claim deduction of up to Rs 50,000 for medical expenses made during the year.
5. Profit from Selling Shares or Equity Mutual Funds
Only after 1-year holding (Long Term Capital Gains)
Maximum Tax-free Gains: Rs. 1 Lakh
If you invest in stocks or mutual funds then you can make your profits 100% non-taxable up to Rs. 1,00,000.
Same is applicable to equity mutual funds
Remember any long term capital gain over Rs. 1 Lakh attracts a tax of 10%. Further, in such case, you will not be able to avail indexation benefits.
Expert Tip – If you have long term or short term loss in equity, make sure you file your return in time so that you can carry forward your losses.
You will be able to set off future gains against these losses. But you will not be able to carry forward any losses if you miss the return deadline date.
6. House Rent Allowance
Those living in rented housing or away from their own home for work are entitled for a House Rent Allowance of 40-50 percent of their base wage, or rental amounts exceeding 10% of salary/income or the actual amount of HRA received, whichever is smaller. Those who live in leased housing and do not get a House Rent Allowance are entitled for monthly deductions of Rs. 5,000, or 25% of their income, whichever is less, or rent payments exceeding 10% of total income. This only applies if the person in question does not own any other property in the city in which they live, whether it is in their own name, the name of their spouse, or the name of their minor children.
7. Expenses to treat Disabled Dependent
Such deductions are a part of Section 80DD. Fixed deductions of Rs. 75000 are allocated for a person with 40 to 80% disability and Rs. 125000 for more than 80% disability. Such expenses should be for treating a disease, rehabilitation or training. You will have to furnish a certificate of disability to avail of the benefit of such deduction.
8. Medical Expenses
Section 80D allows you to claim deductions against premiums paid towards health insurance policies for self, spouse, dependent children, and dependent parents. You should absolutely buy health insurance for everyone in your family, but even if you don’t, you can claim deductions up to Rs 5,000 for expenses incurred for preventive health check-ups. Also, healthcare expenses incurred by you as a senior citizen, or by you for your senior citizen parents, can also earn deductions up to Rs 50,000 assuming the senior citizen is not covered by health insurance.
9. Increase in Retirement Fund Contribution
Salaried individuals can look at making additional contribution towards ‘Voluntary Provident Fund’ in addition to EPF, if the investment limit of Rs 1.5 lakh is not exhausted. This additional contribution will also be deductible from taxable income subject to conditions. Further, the employer’s contribution to NPS (subject to 10% of salary) will provide an additional deduction to the employee. Employee’s own contribution to EPF and VPF should not exceed Rs 2.5 lakh in a financial year or else income tax will be payable on the interest accretion on the excess provident fund contributions.
10. Charitable Donations
Donations to relief funds, NGOs, political parties, Swachh Bharat Kosh, Clean Ganga Fund, the National Fund for Control of Drug Abuse and certain other types of charitable organizations are available for deduction between 50%-100% under Section 80G of the Income Tax Act. Donors are required to furnish receipts, addresses, registration number of the trust, PAN numbers and donation amounts when claiming deduction. These donations are also subject to certain other conditions under the act such as cash donations above Rs. 2,000 being ineligible.