Here are ten legal ways to save taxes in India:
1. Use of Section 80C for investments in specified instruments such as Public Provident Fund (PPF), Employees Provident Fund (EPF), Equity-Linked Saving Schemes (ELSS), etc.
Under Section 80C of the Income Tax Act, 1961, individuals can claim deductions for specified investments and expenditures up to a maximum limit of INR 1.5 Lakhs per financial year. Some of the eligible investments under this section include contributions to PPF, EPF, ELSS, National Pension Scheme (NPS), tax-saving fixed deposits, tuition fees for children, and more. By making these investments, individuals can reduce their taxable income and save on taxes.
2. Avail HRA (House Rent Allowance) exemption while calculating taxable income, if you live in a rented house.
House Rent Allowance (HRA) is a component of an individual's salary that is paid by an employer to cover the cost of rented accommodation. As per the Income Tax Act, 1961, an individual can claim HRA exemption while calculating taxable income, if he/she lives in a rented house. The exact amount of exemption depends on several factors such as the actual rent paid, the HRA received, and the basic salary. Generally, the least of the following is exempt from tax: (i) actual HRA received, (ii) 50% of the basic salary for those living in metropolitan cities and 40% for those living in other cities, or (iii) the excess of rent paid over 10% of the basic salary. By claiming HRA exemption, an individual can reduce his/her taxable income and save on taxes.
3. Make use of tax-saving fixed deposits under Section 80C.
Tax-saving fixed deposits, also known as Tax Saving Fixed Deposits (TSFD), are a type of fixed deposit scheme offered by banks in India that provide an investment option for individuals looking to save taxes under Section 80C of the Income Tax Act, 1961. Investments made in TSFD are eligible for a tax deduction of up to INR 1.5 Lakhs per financial year. The deposit has to be made for a minimum lock-in period of 5 years and the interest earned is taxed as per the individual's tax slab. By investing in TSFD, individuals can reduce their taxable income and save on taxes. It is important to compare various tax-saving fixed deposit schemes offered by different banks and choose one that meets your financial goals and needs.
4. Take advantage of tax benefits offered on home loan interest under Section 24 of the Income Tax Act.
Under Section 24 of the Income Tax Act, 1961, individuals can claim a tax deduction on the interest paid on a home loan taken for the purpose of purchasing or constructing a residential property. The maximum amount that can be claimed as a deduction is INR 2 Lakhs per financial year for self-occupied properties, and there is no upper limit for properties that are let out. To avail this benefit, the individual must own the property and must have taken a loan from a financial institution or a housing finance company. The deduction can be claimed in the financial year in which the payment of interest is made. By claiming a tax deduction on home loan interest, individuals can reduce their taxable income and save on taxes.
5. Utilize the deduction available for tuition fees of children under Section 80C.
Under Section 80C of the Income Tax Act, 1961, individuals can claim a deduction for tuition fees paid for up to two children for their full-time education in India or abroad. The tuition fees should be for pursuing any graduate or post-graduate course in a university, college, or any other institution. The maximum amount of deduction that can be claimed is INR 1.5 Lakhs per financial year. It is important to note that the tuition fees should not include any development fees, donation, or any other charges that are not directly related to the education of the child. By claiming this deduction, individuals can reduce their taxable income and save on taxes.
6. Avail the tax benefit on medical insurance premium under Section 80D.
Under Section 80D of the Income Tax Act, 1961, individuals can claim a deduction for the premium paid towards medical insurance for themselves, their spouse, dependent children, and parents. The maximum deduction that can be claimed is INR 25,000 for individuals and INR 30,000 for senior citizens. For senior citizens, an additional deduction of up to INR 50,000 can be claimed for medical expenses incurred for self or dependent parents. It is important to note that the premium should be paid from taxable income and should be for a policy issued by a recognized insurance company. By claiming this deduction, individuals can reduce their taxable income and save on taxes.
7. Make use of the deduction available for donation made to specified organizations under Section 80G.
Under Section 80G of the Income Tax Act, 1961, individuals can claim a deduction for donations made to specified organizations, such as charitable trusts, non-profit organizations, and religious institutions. The donation should be in the form of cash or cheque, and the receipt from the organization should be kept for claiming the deduction. The amount of deduction varies based on the organization and the type of donation, and can range from 50% to 100% of the donation amount. It is important to note that donations made to political parties are not eligible for deduction under this section. By claiming a deduction for donations made to eligible organizations, individuals can reduce their taxable income and save on taxes.
8. Claim deductions for differently-abled dependents under Section 80DD.
Under Section 80DD of the Income Tax Act, 1961, individuals can claim a deduction for expenses incurred for the maintenance and treatment of a dependent who is a person with a disability. The dependent should be either a spouse, a child, a sibling, or a parent of the individual, and should be certified by a medical authority as having a disability. The maximum amount of deduction that can be claimed is INR 75,000 for a person with a disability and INR 1.25 Lakhs for a person with a severe disability. It is important to note that proof of expenses and the disability certificate should be kept for claiming the deduction. By claiming this deduction, individuals can reduce their taxable income and save on taxes.
9. Utilize the deduction available for maintenance of senior citizens under Section 80DDB.
Under Section 80DDB of the Income Tax Act, 1961, individuals can claim a deduction for medical expenses incurred for a specified medical treatment of a senior citizen who is a tax payer or the taxpayer's dependant. The senior citizen should be either the taxpayer, the taxpayer's spouse, parent or a dependent and must be suffering from specified diseases such as Parkinson's disease, malignant cancers, full-blown AIDS, chronic renal failure, neurological diseases, and hematological disorders. The maximum amount of deduction that can be claimed is INR 40,000 for taxpayers below the age of 60 years and INR 1 Lakh for taxpayers aged 60 years or above. It is important to note that proof of expenses and the medical certificate from a specialist doctor should be kept for claiming the deduction. By claiming this deduction, individuals can reduce their taxable income and save on taxes.
10. Make use of the deductions available for business expenses such as rent, insurance, repair and maintenance, etc. under Section 37 of the Income Tax Act.
Under Section 37 of the Income Tax Act, 1961, individuals and businesses can claim deductions for expenses incurred for the purpose of carrying on a business or profession. These expenses should be ordinary and necessary for the business and should not have been disallowed under any other provisions of the Income Tax Act. Some examples of expenses that can be claimed as deductions under this section are rent for business premises, insurance premium for business assets, repair and maintenance expenses, and any other expenses that are directly related to the business. The amount of deduction claimed should be in accordance with the accounting principles followed by the taxpayer and should be supported by proper documentation. By claiming these deductions, individuals and businesses can reduce their taxable income and save on taxes.
Note:
It is important to note that the applicable limits and rules may change from time to time, and it is advisable to consult a tax expert or refer to the latest tax laws for updated information.
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