It does not matter whether we are first-time taxpayers or irregular ones, tax planning is highly essential for all of us. One needs to plan taxes efficiently to save a lot of money. It is imperative to mention that the Indian tax regulations are difficult for evaluation. We all need commanding expertise to decipher the complex tax reforms and policies. But what’s difficult from outside might not be that annoying for you. Tax saving is an uncomplicated practice that can be resorted to keeping in mind the monetary benefits you might be showered with in future. The Indian tax laws and guidelines have provisions for specified deductions or exemptions dedicated for all classes of taxpayers that include salaried individuals, professionals, and businessman, etc.
Here is a complete layout of ways that would help us in claiming such tax deductions or exemptions. All these ways are in congruence with legal terms and can be adopted as a substitute for expert advice.
ELSS (Equity Linked Savings Scheme)
Major tax relief, an income taxpayer can get in India is the tax deduction under section 80C of Income tax act wherein you can get a tax exemption on Rs. 1,50,000/-
Of the many options available under section 80C, it is beneficial to invest in ELSS (Equity Linked Savings Scheme).
Benefits of investing in ELSS are:
- ELSS gives you a dual benefit of tax saving and wealth creation
- You can save upto Rs. 45,000/- on taxes per year if you are in the 30% tax slab
- Lowest lock-in period of 3 years. FDs have a minimum lock-in period of 5 years.
- Only ELSS has the ability to beat inflation because of their exposure to the Stock market
- Greater returns (approx. 15%) in comparison with others such as FD, RD, NPS etc. (7–9%)
Creation of a HUF (Hindu Undivided Family)
A HUF can be created by a family & by pooling in their assets. HUF will be given a separate PAN card and taxed separately. HUF can also avail the 80C deductions mentioned above.
Apply for HRA (House Rent Allowance)
The exemption for HRA benefit is the minimum of :
- Actual HRA received
- 50% of salary if living in metro cities or 40% for non-metro
- Excess of rent paid annually over 10% of the annual wage
Use an HRA calculator to know how much tax you can save by claiming HRA. Don’t forget to submit the proofs to HR & claim deduction.
Housing Loan Interest exemption
You can claim upto Rs. 2,00,000/- tax exemption on the interest paid towards the house loan interest
Use this House loan EMI calculator to know how much interest you are paying toward a home loan.
Capital gain is the amount you earn by selling a capital asset (Land, House etc.) An example of capital gain from selling a house is given below:
If the entire amount is equal to or less than the cost of the new home, then the whole capital gain is exempted.
If the amount of capital gain is more than the price of a new house, then the value will be exempted.
Children education expenses
You can save upto Rs. 1,50,000/- on the tuition fee paid toward your children fee under section 80C
You can also claim the following amount for a maximum of 2 children
Education allowance: Rs. 100/- per month per child.
Hostel expenditure allowance: Rs. 300/- per month per child.
A sum of upto Rs. 15,000/- which is received as medical reimbursement is exempted from tax.
Medical insurance premium paid is exempted from Income tax upto Rs. 25,000/- per year under section 80D
Utilising 80C Section
Section 80C offers a maximum tax deduction of up to Rs. 1,00,000. You need to utilise this section of the tax deduction by investing in one of the below-mentioned investment options.
- Public Provident Fund
- Life Insurance Premium
- National Savings Certificate
- Equity Linked Savings Scheme
- Five years fixed deposits with banks and post office
- Tuition fees paid for children’s education, up to a maximum of 2 children.
Leave Travel Allowance
If your company is providing Leave Travel Allowance for your holidays, then you will be subject to tax exemption in a span of 4 years. If you fail to claim the benefit in the said span, you might carry forward your journey to the subsequent block and declare it in the first year of the block. It would enable you to be eligible for three exemptions in that block.
Tax on Bonus
You must be aware that a bonus from your employer is fully taxable in the calendar year in which you receive it. However, you can request your employer to do the following:
- You can ask your employer to postpone the bonus payment to the subsequent year if you are expecting a reduction or modification of tax rates in the following year.
- You should consider presenting your tax investment details before, to restrict your employer from deducting tax on bonus before handing it over.
Options beyond 80C
If you have already saturated your tax deduction limit of Rs.1,00,000 under the 80C section, here is a compiled list of a few more opportunities to go with.
- Section 80D – It includes a Deduction of Rs. 15,000 for medical insurance of self, spouse and dependent children and Rs. 20,000 for medical coverage of parents above 65 years
- Section 80G- It encompasses donations to welfare funds or charitable institutions.
- Section 80CCD- It allows employers’ contributions to the NPS account of an employee as a deduction up to a limit of 10% of basic +DA.
- Section 80CCG- It refers to Rajiv Gandhi Equity Savings Scheme, 2012 (RGESS). The scheme allows first time retail investors to avail a tax benefit on 50% of the investment made up to Rs. 50,000 directly into RGESS eligible securities.
- Section 80DD- The scheme allows deduction on expenses of maintenance of disabled persons up to a limit of Rs. 75,000 or Rs.1,25,000 depending upon the severity of disability
- Section 80DDB- It includes deduction of the expenditure on medical treatment for very senior citizens, up to a limit of Rs.80,000 for senior citizens and Rs.40,000 for others
- Section 80E- This particular scheme allows the entire interest paid on education loan as deduction from the assessment year relevant to the previous year in which the assigned person begins paying interest and seven subsequent years
- Section 80G- It allows all the beneficiaries to claim deduction up to a definite limit for welfare contributions made to charitable organisations
- Section 80GG- It provides deduction to the beneficiary not receiving HRA for rent paid by him up to specified limits.
- Section 80U- It allows deductions for persons with disabilities of Rs. 75,000 for normal disability and Rs. 1,25,000 for severe disability.
- Section 80TTA- It provides deduction for interest earned from savings bank account up to a limit of Rs.10000.