An Income Tax is a tax paid by individuals or entities with respect to the income or profit earned by them. It is generally computed as the product of a tax rate times the taxable income. The amount of tax varies with the respective income based on the tax slab in India. Our government used the revenue generated from these taxes for the smooth functioning of the nation.
Taxpayers always look for opportunities to help them save tax and reduce their tax liability. They always look for tax-saving investment options when the ITR filing date approaches. This is important as no one likes to miss out on an opportunity to save the money paid as tax. So, how to save on income tax in India? Keep reading to find out!
There are multiple legal ways to save your tax under the Income Tax Act, of 1961. It contains NPS, medical insurance, tax-saving mutual funds, home loans, insurance premiums, etc. You may be a business owner, a freelancer, a salaried individual, or maybe earning income from your investments, you will have to pay tax to the government within the given period.
What Are the Tax-saving Options Under Section 80C?
Section D is one of the well-known and prominent tax-saving options available to individuals in India. It has various expenses and investment options that you can claim deduction on – up to 1.5 lakhs in a financial year. Following are the tax-saving options under 80C:
- PPF or Public Provident Fund
PPF or Public Provident Fund is a government scheme with a tenure of 15 years. The current interest rate on PPF is 7.1% and the interest you gain on PPF is tax-free. You can open a PPF account with as little as Rs 500. The maximum investment allowed in a financial year is Rs 1.5 lakh respectively. The rates of PPF change each quarter and it is the most common tax-saving scheme available at most of the post-offices and banks in India.
- Tax Saving Fixed Deposit or FD
Tax saving FD is one the most widely used method of saving tax. You can get a tax deduction of up to Rs 1.5 lakh under a 5-year tax saving FD. It has a fixed rate of interest (currently 6-8%) and the interest that you gain from FD is taxable as your tax bracket.
- ELSS or Equity Linked Savings Scheme
ELSS or Equity Linked Saving Scheme comes with a lock-in period of 3 years. It is the only mutual fund in India that qualifies for a tax deduction under Section 80C. As the investments are mainly done in the equity markets, the returns offered by ELSS are higher as compared to other tax-saving schemes in the long run.
You can make an investment in SIP or the lump-sum method. Keep in mind that you are not allowed to withdraw your money before the 3-year lock-in period. Also, as the investment is done in the share market, the risk is relatively higher. However, with consistency, ELSS can be a great option in the long run.
- National Saving Certificate
National Saving Certificate has a tenure of 5 years and offers a fixed rate of interest (currently 6.8%). The interest you receive on NSC is considered a tax-saving option, and you can take a rebate of up to Rs 1.5 lakh under section 80C.
- Home Loan Repayment
If you have taken a home loan, you are eligible to claim a tax deduction under section 80C for the part of EMI that goes towards repayment of the principal amount. However, the amount that you pay as interest doesn’t qualify for a tax deduction.
- Senior Citizens Savings Scheme
SCSS has a tenure of 5 years and is a long-term income tax saving option. This is a government-backed scheme and is available for citizens above 60 years of age. SCSS offers a rate of 7.4% which is taxable. Also, the citizen can get a tax deduction of up to Rs 1.5 lakh.
- EPF or Employee Provident Fund
EPF or Employee Provident Fund is a retirement benefits scheme mainly for salaried individuals. In this fund, 12% of the basic salary and DA or dearness allowance is deducted by the employer. The deducted amount is then deposited in provident fund schemes recognized by the government. EPF is a common tax saving scheme and the deduction is also counted towards the Rs 1.5 lakh limit under Section 80C.
- Tuition Fees
This benefit is available only to individual parents or guardians with a maximum of two children per individual. If you fall under this category, you can claim tax deductions of up to Rs 1.5 lakh on tuition fees paid for the education of your child. Moreover, the deduction will not depend on the class of the child.
It is important to note that the education course your child is enrolled in should be full-time in an Indian college, school, or university. Parents with adopted children, divorced parents, and unmarried individuals can also avail the benefits of this scheme.
- Sukanya Samriddhi Yojana
If you are a parent with a girl child below the age of 10, then you can avail benefit from this scheme. The account has a tenure of 21 years or until the girl gets married after 18. The current interest rate for this scheme is 8.5% and the interest will be tax-free. You will be eligible for tax deduction under Section 80C of up to Rs. 1.5 lakh for investments you make towards this scheme.
What Are the Tax-saving Options Other Than Section 80C?
There are many deductions under Section 80 apart from the 80C deductions that you can use to save tax. Enlisted below are the tax saving options other than Section 80C:
- You can claim a deduction of Rs 50,000 on Home Loan Interest under Section 80EE.
- You can get Medical Insurance and claim a deduction of up to Rs. 25,000 (or Rs 50,000 for senior citizens) for medical insurance premium.
- You can claim a deduction on interest paid on education loans under Section 80E.
- You can claim a tax deduction of up to Rs 1.5 lakh for contributions to NPS or the National Pension System under Section 80CCD.
- Under Section 24, you can claim the interest deduction for housing loans up to Rs 2 lakhs.
- Under Section 80G, you can claim a deduction if you have made charity to notified institutions or funds.
- Under section 80EEB, you can claim the interest deduction for a vehicle loan taken for buying an electric vehicle.
- You can claim the capital gain exemption for capital gains under Section 54-54F.
- You can claim a deduction of up to Rs 10,000 for interest received in a savings bank account under Section 80TTA.
These are some of the ways you can minimize your tax liability and save income tax in India. Always pick the tax-saving instrument that best suits your requirements. You should also consider the liquidity, safety, and returns of the tax-saving instrument.
Do not take a financial decision based solely on the returns to be gained from the product. Your aim should not only be to save tax but to achieve the future goals that you have set for yourself. Therefore, you should have a clear-cut objective and should link your tax instrument to your desired goal.