There are several ways to save tax in India, is the top popular in India, some of the most common methods are:
Invest in Tax-saving instruments:
One of the easiest ways to save tax is by investing in tax-saving instruments such as the Public Provident Fund (PPF), National Pension System (NPS), Equity Linked Saving Scheme (ELSS), Tax-Saving Fixed Deposits (FD), and Unit Linked Insurance Plan (ULIP). These investments offer tax deductions under Section 80C of the Income Tax Act.
Claim House Rent Allowance (HRA):
If you are a salaried individual and pay rent for accommodation, you can claim House Rent Allowance (HRA) to reduce your tax liability. The HRA received from your employer is partially or fully exempted from tax, depending on the amount of rent paid and your salary.
Use Medical Insurance:
You can avail of tax benefits by purchasing medical insurance for yourself, your spouse, and your dependent children. Under Section 80D, you can claim a deduction of up to Rs. 25,000 for medical insurance premiums paid.
Donate to Charity:
Donations made to registered charities and non-profit organizations are eligible for tax deductions under Section 80G of the Income Tax Act. You can claim up to 50% of the donation as a deduction from your taxable income.
Use Home Loan:
If you have taken a home loan for purchasing or constructing a house, you can claim tax deductions on the interest paid and the principal amount repaid under Section 24 and Section 80C, respectively.
Claim Leave Travel Allowance (LTA):
You can claim tax deductions on travel expenses incurred during your vacation by using your Leave Travel Allowance (LTA) provided by your employer.
It is advisable to consult a tax expert or a financial advisor to understand which tax-saving instrument is best suited for your financial goals and tax-saving requirements.
How much an Indian can save tax under Life Insurance Investment?
An Indian taxpayer can save tax under Life Insurance Investment by investing in life insurance policies such as Unit Linked Insurance Plans (ULIPs), Endowment policies, and term insurance policies.
The tax benefit on life insurance policies depends on the premium paid and the type of policy chosen. As per Section 80C of the Income Tax Act, an individual can claim a deduction of up to Rs. 1.5 lakh for the premium paid towards life insurance policies.
However, the premium paid should not exceed 10% of the sum assured for policies issued after 1st April 2012. For policies issued before 1st April 2012, the premium paid should not exceed 20% of the sum assured.
Additionally, the maturity proceeds or death benefit received from a life insurance policy are tax-free under Section 10(10D) of the Income Tax Act, subject to certain conditions.
It is advisable to consult a tax expert or a financial advisor to understand the tax benefits of investing in life insurance policies and how much an individual can save tax based on their investment amount and policy type.
How much an Indian can save tax under Health Insurance?
An Indian taxpayer can save tax under Health Insurance by investing in medical insurance policies for themselves, their spouse, and dependent children.
As per Section 80D of the Income Tax Act, an individual can claim a deduction of up to Rs. 25,000 for the premium paid towards medical insurance for themselves, their spouse, and dependent children. For senior citizens, the deduction limit is increased to Rs. 50,000.
If an individual has taken a medical insurance policy for their parents, an additional deduction of up to Rs. 25,000 can be claimed under Section 80D. If the parents are senior citizens, the deduction limit is increased to Rs. 50,000.
Therefore, an individual can claim a maximum deduction of up to Rs. 1 lakh under Section 80D for the premium paid towards medical insurance for themselves, their spouse, dependent children, and parents. It is advisable to consult a tax expert or a financial advisor to understand the tax benefits of investing in medical insurance policies and how much an individual can save tax based on their investment amount and policy type.
How much an Indian can save tax under PPF?
An Indian taxpayer can save tax under Public Provident Fund (PPF) by investing in this long-term savings scheme.
The tax benefit on PPF investments is available under Section 80C of the Income Tax Act, where an individual can claim a deduction of up to Rs. 1.5 lakh for the amount invested in PPF in a financial year.
The interest earned on the PPF investment is also tax-free, and the maturity amount received at the end of the 15-year investment period is exempt from tax.
The current interest rate on PPF is determined by the Government of India and is subject to change every quarter. The interest rate for PPF for the April-June quarter of 2021 is 7.1% per annum.
The minimum investment amount in PPF is Rs. 500 per year, and the maximum investment limit is Rs. 1.5 lakh per year. Therefore, an individual can save tax up to Rs. 1.5 lakh by investing in PPF under Section 80C of the Income Tax Act.
How much India can save tax under Tax-Saving Fixed Deposits?
An Indian taxpayer can save tax under Tax-Saving Fixed Deposits (FDs) by investing in these fixed deposit schemes offered by banks and financial institutions.
The tax benefit on Tax-Saving FDs is available under Section 80C of the Income Tax Act, where an individual can claim a deduction of up to Rs. 1.5 lakh for the amount invested in Tax-Saving FDs in a financial year. The lock-in period for Tax-Saving FDs is 5 years, and the interest rate offered by banks and financial institutions on these deposits is typically higher than regular FDs. The interest earned on Tax-Saving FDs is taxable as per the investor’s tax slab.
The minimum investment amount in Tax-Saving FDs varies between banks and financial institutions and can range from Rs. 100 to Rs. 10,000. The maximum investment limit is Rs. 1.5 lakh per year. Therefore, an individual can save tax up to Rs. 1.5 lakh by investing in Tax-Saving FDs under Section 80C of the Income Tax Act.
How much an Indian Individual can save tax under House Rent Allowance?
An Indian individual can save tax under House Rent Allowance (HRA) if they are a salaried employee receiving HRA as a part of their salary. The tax benefit on HRA is available under Section 10(13A) of the Income Tax Act. The deduction allowed is the minimum of the following:
Actual HRA received from the employer Rent paid minus 10% of the salary (basic salary + dearness allowance) 50% of the salary (basic salary + dearness allowance) if the employee lives in a metro city or 40% of the salary (basic salary + dearness allowance) for non-metro cities.
The tax benefit on HRA is available only to those employees who are living in rented accommodations and are receiving HRA as a part of their salary. The individual must provide rent receipts to their employer to claim the HRA exemption. It is important to note that if an individual is not receiving HRA from their employer, they cannot claim tax benefits on rent paid under any other section of the Income Tax Act.
