May 28, 2024

As the famous saying goes ‘A penny saved is a penny earned‘. Tax planning is one of the ways which can help you save on taxes and increase your income. The income tax act provides deductions for various investments, savings and expenditures incurred by the taxpayer in a particular financial year. We will discuss some of the avenues which can help you save taxes.

We have a tendency to invest in various products that improve our quality of life but can also cause considerable financial distress. To significantly alleviate this burden, the government offers income tax exemptions on direct taxes charged on your whole pay.

Buy a home loan and enjoy tax benefits under Section 80C

Numerous government-mandated programmes, such as the PMAY (Pradhan Mantri Awas Yojana) and DDR (Delhi Development Authority) Housing Scheme, aim to make housing more accessible in India, while Sections 80C and 24(b) minimise monetary liability through lower tax burdens.

Whole annual income spent on repayment of the principal borrowed amount is eligible for Section 80C deductions of up to 1.5 lakh. Section 24(b) allows for tax exemption on the interest portion of a house loan up to Rs 2 lakh per year.

Furthermore, if you rent out the newly purchased home, the entire interest component is exempt from annual income tax computations.

Persons who purchase a property for the purpose of building a home can also profit from section 24(b), as long as the construction process is completed within five years.

Section 80EEA allows you to claim an additional reduction in your annual tax liability if you are a first-time homeowner.

Buy a health insurance policy

People can claim tax deductions under section 80D for the portion of their annual taxable income spent on premium payments. Depending on the age of the covered, different sums are exempt from such income tax computations.

Park your money in government schemes

Numerous government-mandated schemes offer high returns on total investments along with tax waivers. Individuals can claim up to Rs 1.5 lakh spent on such investments as tax waivers on total annual income, under Section 80C of the Income Tax Act.

Tax exemptions can be availed by investing in the following tools:

  • Senior Citizen Savings Scheme (SCSS)
    Sukanya Samriddhi Yojana (SSY)
    National Pension Scheme (NPS)
    Public Provident Fund (PPF)
    National Pension Scheme (NPS)

Buy life insurance plans

Section 80C of the Income Tax Act provides for premium payments, and Section 10(10D) provides for the sum promised received at maturity or early death of the insured, whichever occurs first.

Yet, if the insurance is bought after 1st April 2012, tax benefits of up to Rs 1.5 lakh paid on annual premiums can be claimed under Section 80C, provided it is less than 10% of the entire sum assured.

If the policy was purchased before to April 1, 2012, claims under Section 80C can be filed as long as the total premium payments do not exceed 20% of the sum guaranteed.

Acquisition or renewal of life insurance coverage, as well as annuity payments on such plans made through monthly salary, are also eligible for tax exemptions of up to Rs 1.5 lakh under Section 80CCC.

Only certain pension funds under section 23AAB are eligible for exemptions of up to Rs 1.5 lakh under section 80CCD(1).

Investment options under Section 80C

The most popular tax-saving options available to individuals and HUFs in India are under Section 80C of the Income Tax Act, Section 80C includes various investments and expenses you can claim deductions on – up to the limit of Rs. 1.5 lakh in a financial year.

Investment Returns Lock-in Period
5-Year Bank Fixed Deposit 6% to 7% 5 years
Public Provident Fund (PPF) 7% to 8% 15 years
National Savings Certificate 7% to 8% 5 years
National Pension System (NPS) 12% to 14% Till Retirement
ELSS Funds 15% to 18% 3 years
Unit Linked Insurance Plan (ULIP) Varies with Plan Chosen 5 years
Sukanya Samriddhi Yojana (SSY) 7.60% N/A
Senior Citizen Saving Scheme (SCSS) 7.40% 5 years

Other Tax Saving options beyond Section 80C

Apart from the 80C deductions, there are various deductions under Section 80 you can use to save on income tax. Tax benefits on health insurance premiums and home loan interest are a few-

  • Medical insurance premium to be claimed at Rs. 50,000. (Rs 25,000 for self-spouse and children and Rs 25,000 for dependent parents below 60 years). Claim medical insurance premium paid up to a maximum of Rs 1,00,000 per annum if availed for senior citizens. If senior citizens are not covered under any health insurance, then medical expenditure incurred can be claimed under 80D up to Rs 50,000
  • Interest paid on a home loan can be claimed as a deduction under section 24 up to Rs 2 lakh. Section 80EE also allows you to claim a deduction of up to Rs 50,000 on home loan interest which is over and above the limit of section 24. Eligibility of additional interest of Rs 1.5 lakh on purchase of a new house under affordable housing scheme as per section 80EEA is extended till 31st March 2022
  • A home loan would also help you in reducing your taxable income as the principal portion of the home loan can be claimed under Section 80C up to Rs 1.5 lakh and the interest portion can be claimed as a deduction from income from house property
  • Any charity to notified institutions or funds can be claimed as a deduction under section 80G
  • Interest paid on education loan is allowed as deduction under section 80E

How to plan your tax-saving investments for the year?

The best time to start planning your tax-saving investments is at the beginning of the financial year.

Most taxpayers procrastinate till the last quarter of the year, resulting in hurried decisions. Instead, if you plan at the start of the year, your investments can compound and help you achieve long-term goals. Remember, tax-saving should be an additional perk and not a goal in itself.

Use the following pointers to plan your tax-saving for the year:

  • Check the tax-saving expenses you already have – like insurance premiums, children’s tuition fees, EPF contribution, home loan repayment etc.
  • Deduct this amount from Rs 1.5 lakh to figure out how much to invest. You needn’t invest the entire amount if expenses are covering the limit.
  • Choose tax-saving investments based on your goals and risk profile. ELSS funds, PPF, NPS and fixed deposits are some of the popular options.

This way, you can figure out how to exhaust the 80C limit. It is best to begin investing in the first quarter of the financial year so that you can spread the investments over the year. Doing this won’t burden you at the end of the year and will also allow you to make informed investment decisions.

 

Frequently Asked Questions


How does Income Tax work in India?

Given a choice, most of us wouldn’t want to pay tax on the income we earn. But we should. As citizens of India, we are also consumers of the country’s public infrastructure and facilities, and income tax is an important source of revenue for the government. So, it is our duty and responsibility to contribute towards building and maintaining the public infrastructure. Paying income tax and filing income tax returns on time ensure that.

What do you mean by 80C deduction under chapter VI A?

Income tax department allows reducing of the taxable income of the taxpayer in case the taxpayer makes certain investments or eligible expenditures allowed under Chapter VI A. 80C allows deduction for the investment made in PPF , EPF,  LIC premium , Equity-linked saving scheme, principal amount payment towards home loan, stamp duty and registration charges for purchase of property, Sukanya smriddhi yojana (SSY) , National saving certificate (NSC) , Senior citizen savings scheme (SCSS), ULIP, tax saving FD for 5 years, Infrastructure bonds etc

How to save tax other than section  80C?

Apart from 80C, various other provisions allow deductions  to taxpayer as follows :

80D- for medical insurance premium for self, spouse &  dependent parents. 
Section 80EE – Deduction  for interest payment of home loan for first home owners
Section 24- Interest deduction for housing loan upto Rs 2 lakh
Section 80EEB- interest deduction for vehicle loan for purchase of electric vehicle
80G- donations to charitable institutions. 
80GG-if your income does not include HRA component, you can claim rent deduction under 80GG
Section 80TTA- deduction upto Rs 10,000 for interest received in saving bank account. 
Section 54 -54F – Capital gain exemption for capital gains.


How can I save more tax on my salary?

To save tax on your salary, you can utilize deductions and exemptions offered under the Income Tax Act. These include allowances like HRA and LTA, as well as the Standard Deduction. Additionally, Section 80C allows for deductions up to Rs 1.5 lakh for expenses and investments, while investing in the NPS scheme can provide an extra Rs.50,000 deduction. Other tax-saving opportunities exist under sections like 80D for health insurance premiums and 80E for education loan interest paid.

What is section 80CCD ?

80CCD is a subsection of 80C which allows a deduction for contributions to national pension schemes as notified by the central government. The deduction is allowed for contributions made by an employee, employer or voluntary self contribution. The overall limit of deduction allowed in section 80C is Rs 1.5 lakh plus an additional deduction of Rs 50,000  u/s 80CCD (1b) for self contribution to NPS or  Atal pension yojana.

What is the maximum deduction under section 80D?

Maximum deduction allowed varies in different scenarios as below:

Individuals can claim a maximum deduction of Rs 25000 for insurance premium for self, spouse and dependent children. 
Individuals can claim a maximum deduction up to Rs 50, 000 including premium for self, spouse, dependent children and dependent parents below 60 years of age.
Whereas, Individuals can claim a maximum deduction of up to Rs 75, 000 including premium for self, spouse, dependent children and dependent parents above 60 years of age.
Further Rs 1,00,000 can be claimed as a maximum deduction if an individual is above 60 years of age and makes the payment for premium for self, spouse, dependent children and dependent parents who are also above 60 years of age. 


What is section 24?

Section 24 allows a deduction for home loan interest up to Rs 2 lakh if the house property is self-occupied or vacant whereas if the house is rented, the entire interest amount can be deducted from the ‘Income from house property. This deduction gets redacted to Rs 30,000 if the following conditions are not met (i) Home loan should be taken for purchase or construction of the house property (ii) The loan must be taken after 1st April 1999 (iii) In case of construction of house property, the same should be completed within 5 years. 

Who can claim HRA exemption? 

Salaried employees who receive house rent allowance as a part of salary and make a payment towards rent can claim HRA exemption to reduce their taxable salary wholly or partially.

How can I save tax if I earn 15 lakh?

If you earn 15 lakh, there are various ways to save tax. You can utilize exemptions such as HRA, LTA, and reimbursements to lower your net salary income. Additionally, deductions under Section 80C, 80D, and 80E for investments, expenses, health insurance premiums, and education loan interest can further decrease your taxable income and help you save on taxes.

How to calculate HRA ?

HRA exemption is allowed least of the below :

Actual HRA received by the employee
40 % of salary for non-metro city or 50 % of salary if the rented property is in Metro city like Mumbai, Delhi, Kolkata, Chennai )
 Actual rent paid less than 10% of salary.

For the above calculation, the salary would include basic, dearness allowance and fixed percentage of commission.