Tax Saving Options How to Keep More Money in Your Pocket

Introduction:

As a responsible citizen, you must pay taxes. However, no one wants to pay more than they have to. It is fortunate that there is a variety of tax-saving options available that are designed to help you reduce your tax burden and keep more of your earnings. In this blog post, we will look at some of the best tax-saving options.

Section 80C Deductions:

Section 80C of the Income Tax Act allows individuals to claim tax deductions of up to Rs. 1.5 lakh. Some of the popular investment options that qualify for this deduction include:

• Public Provident Fund (PPF)
• National Pension Scheme (NPS)
• Equity-Linked Saving Scheme (ELSS)
• National Savings Certificate (NSC)
• Sukanya Samriddhi Yojana (SSY)

By investing in these instruments, individuals can not only save taxes but also earn returns on their investments.

Example: Let’s say you have a taxable income of Rs. 11 lakh per year. By investing Rs. 1.5 lakh in PPF or NPS, you can bring down your taxable income to Rs. 9.5 lakh per year, which will result in significant tax savings.

Health Insurance Premiums:

Under Section 80D, individuals can claim tax deductions on the premiums paid for health insurance policies for themselves, their spouse, and their children. The deduction limit is up to Rs. 25,000 for individuals below 60 years of age and Rs. 50,000 for senior citizens.

Example: If you pay a premium of Rs. 18,500 for a health insurance policy for yourself and your family, you can claim a deduction of Rs. 18,500 under Section 80D.

HRA Exemption:

House Rent Allowance (HRA) is a common component of an individual’s salary package. If an individual is paying rent for their residence, they can claim HRA exemption under Section 10(13A) of the Income Tax Act. The exemption amount is the least of the following:

• Actual HRA received
• 50% of basic salary (if residing in metro cities) or 40% of basic salary (if residing in non-metro cities)
• Actual rent paid minus 10% of basic salary

Example: If your monthly rent is Rs. 20,000 and your basic salary is Rs. 50,000, you can claim HRA exemption of Rs. 16,000 per month (least of Rs. 20,000, 50% of Rs. 50,000, or Rs. 14,000).

Interest on loan taken for education :

To promote the higher education in India, the Government of India desired to provide a tax deduction on the interest component of higher education loans. However, the deduction is provided only for the interest part of the EMI. There is no tax benefit for the principal part of the EMI

This deduction can be claimed for a maximum of 8 years from the year of commencement of loan repayment or until the interest is fully paid off, whichever is earlier.

Example: If you have taken an education loan and are paying an interest of Rs. 1 lakh per year, you can claim a deduction of Rs. 1 lakh under Section 80E.

Interest on Home Loans:

Interest paid on home loans is eligible for tax deductions under Section 24 of the Income Tax Act. Individuals can claim a deduction of up to Rs. 2 lakh on the interest paid on their home loan in a financial year. Additionally, principal repayment of up to Rs. 1.5 lakh can be claimed as a deduction under Section 80C.

Example: If you have a home loan and are paying an interest of Rs. 3 lakh per year, you can claim a deduction of Rs. 2 lakh under Section 24, bringing down your taxable income by that amount.

Capital Gains Tax:

Long-term capital gains (LTCG) on equity and equity-oriented mutual funds are exempted up to Rs. 1 lakh per financial year under Section 10(38) of the Income Tax Act. This means that if an individual earns LTCG of up to Rs. 1 lakh from the sale of these assets, they will not have to pay any tax on the gains.

Example: If you invest Rs. 2 lakh in an equity mutual fund and sell it after three years for Rs. 3 lakh, your LTCG will be Rs. 1 lakh. Since this amount is below the exemption limit of Rs. 1 lakh, you will not have to pay any tax on the gains.

Conclusion:

Reducing your tax liability can be a challenging task, but it is essential to ensure that you keep more money in your pocket.

The tax-saving options discussed in this blog post are just a few of the many available in India.

It is essential to consult with a tax expert or financial planner before making any significant tax-related decisions to ensure that you are complying with all the relevant laws and regulations.

*** Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Every effort has been made to keep the information cited in this article error-free. Suggestions and feedback to improve the task are welcome. The above comments do not constitute professional advice. The Author can be reached at camohitjain66@gmail.com