How to Save Maximum Income Tax in India !!! 18 Legal Ways !!!

How to Save Maximum Income Tax in India.

!!! 18 Legal Ways !!!

With the end of the financial year nearing, one question on every tax-paying citizen’s mind is ‘How can I save income tax?’ As the income increases, so do our worries about investing in the correct instruments and investing enough, so that we don’t end up paying too much in taxes.

Tax saving isn’t rocket science. If you know where to invest and what will provide maximum tax benefit, you can make the most of your investments. Before going to understand how to save the Income tax, first we have to clear the meaning of Income tax.

What is Income Tax?

Income tax is a portion of your income that you pay to the government. This tax is collected on an annual basis. The authorities use this money to perform administrative tasks.

Approximately 1.46 Crore people have filed tax returns in the financial year 2018-19. A total of ₹11.17 Lakh Crore has been generated as revenue from such tax collection from the masses, as reported by the Central Board of Direct Taxes (CBDT).

As the CBDT facilitates the more intricate tax collection and related services, individuals should develop an idea regarding how to save tax in India. There are different ways through which you can save tax. Some of them are:

Top 18 Best Legal Ways to Save

Tax on Your Income

18. Invest up to 1.5 Lakh under Section 80C:

When you invest in any of the options listed below, you can claim a tax deduction of up to Rs. 1.5 Lakh under Section 80C of The Income Tax Act, 1961.

• Tax Saving Fixed Deposits: These give you the dual benefit of tax exemption and high rate of returns. Tax Saving Fixed Deposits are ideal for those who want to invest their money in low-risk instruments.

• PPF (Public Provident Fund): PPF is a government established savings scheme with a maximum duration of 15 years. The interest earned on PPF is tax-free.

• ELSS Funds: These are the type of mutual funds that invest 80% of your money in equity shares. The lock-in period of ELSS funds is 3 years.

• NSC (National Saving Certificate): NSC has a tenure of 5 years and a fixed rate of interest. The interest you earn on your NSC investment falls under the limit of Rs. 1.5 lakh under Section 80C limit. You can claim tax deductions on this investment if no other investments are using up the limit.

• Life Insurance Premiums: If you have Life Insurance Policies towards which you pay regular premiums, you can use them to claim tax deductions.

• Home Loan Repayment: If you have taken a home loan and are paying premiums towards its repayment, the principal amount on your home loan is tax deductible up to Rs. 1.5 lakh per annum.

• Payment of tuition fees: If you are paying tuition fees for yourself, your spouse or children, you can you can use them to claim tax deductions.

• EPF (Employee Provident Fund): Under the EPF Act, 12% of the employee’s salary goes towards the Employees Provident Fund investment. This deduction is also counted towards the Rs. 1.5 lakh investment limit under Section 80C.

• Senior Citizens Savings Scheme: If you invest in SCSS, you can claim tax deductions under this. The maximum tenure of a SCSS is 5 years and it is available to those above 60 years of age.

• Sukanya Samriddhi Yojana: Parents with a girl child below the age of 10 can claim a deduction under this investment. Under this scheme, the investment holds for 21 years or until the girl marries after turning 18. The interest earned in this investment is tax free.

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17. Pay Health Insurance Premiums:

Health is the important focus today. What will you do if you have all the money and the lifestyle that you desired, but your health does not support you. Health is always to kept over wealth as later can easily be achieved if you have former. With the spread of disease, investment in health insurance is a must. You get a benefit upto 50000, if you are below 60 years old and parents are above 60 Years old. 25000 self-benefit and plus 25000 if you invest for your parents.

If your age is 45 and your parents age is 62, you get a benefit upto 50000/-. Also 5000 Rs medical checkup is also allowed as benefit.

Always advisable to go for cashless Mediclaim. It is always helpful and go for a policy which gives you maximum benefits. Don’t see the premium amount but see the benefits, as a difference of Rs. 2000 annually in the premium amount is not be checked. We spend 1000 Rs a day sometimes to party with friends and chill.

16. Tax deduction on house rent:

You can claim Rent paid to your tenant as a deduction for your Income tax purposes if you are a salaried person. Check the CTC Breakup given by your Company. In that, check the House rent allowance breakup given by your employer. Then see the rent you are paying to your tenant. Lower of two is the deduction that you will get. However, as per income tax there is a formula for claiming the HRA for tax benefits

• The actual rent that is paid should be less than 10% of the basic salary.

• In case you’re staying in a metro, 50% of the basic salary and 40% if you live in a a non-metro city.

• The actual amount received as the HRA from the employer.

Also, there are HRA Calculators online, check any of them. Fill in the details and you will get know how much benefit you can claim.

15. By buying a house:

Under Section 24, you can get deduction from taxable house property income, of Interest paid on Home loan upto `2 lakhs. Also, first time home buyers can claim an additional deduction from taxable income of 50,000 on home loan interest under section 80EE, provided the following criterions are met:

• The loan should not be more than `35 lakh

• The residential house value should be less than `50 lakh

• The home buyer should not have any other residential property registered in his name.

14. Donate to Charity

Donations made to specific organizations in cash are eligible for tax waiver amounting to ₹2,000 under Section 80G of the income tax act. Wire and bank transfers, on the other hand, enjoy complete or partial tax exemptions, respectively.

If you are donating to an organization facilitating scientific research or rural development, you are eligible to enjoy deductions under Section 80GGA.

Partial waivers in case of cash donations are granted, while transfers made through cheque or draft enjoy complete tax waiver.

13. Money Spent on Donation to Political Party:

There is no upper limit to tax deductions on money spent on giving a donation to a political party. Such deductions are a part of Section 80GGC. Such a donation amount equals to 100% deduction.

12. Profit from Selling Shares or Equity Mutual Funds

Only after 1-year holding (Long Term Capital Gains)

Maximum Tax-free Gains: Rs. 1 Lakhs

If you invest in stocks or mutual funds then you can make your profits 100% non-taxable up to Rs. 1,00,000.

For example, if you have invested Rs. 100,000 in TCS stock and in 11 months your investment becomes Rs. 1,20,000 then you have to pay tax on 20,000 profit. However, if you hold it for another month, then you are not liable to pay any tax on the profits.

Same is applicable to equity mutual funds.

Remember any long term capital gain over Rs. 1 Lakh attracts a tax of 10%. Further, in such case, you will not be able to avail indexation benefits

11. Dividends Received on Shares or Equity Mutual Funds

Stocks and Mutual Funds (Equity focused) distribute dividends to all the shareholders. The dividends are tax-free in the hands of the receiver.

Like in the previous example, where you bought stocks worth Rs. 100,000, let’s assume you receive dividends of Rs. 2000 after 10 months. Even though one year is not completed since the time you bought stocks, you still don’t have to pay any tax on such dividends received.

10. Money Received from Provident Funds (after 5 years)

You will save tax on investments in Provident Account in the year of investment. The good news is that you don’t have to pay taxes on interest received from EPF/PF investments (note that Interest received on Fixed Deposit is taxable).

You have to keep your Provident Fund active for at least five years before you start withdrawing money (however not recommended unless an emergency)

9. Fixed Deposit:

Do you know, your funds can be safe in bank plus can save you taxes? If you do not want to take high risk like investing in shares or mutual fund, investing in Fixed deposit is always a safe option. If you invest in Fixed deposit for a period of 5 years, you get a tax benefit u/s 80C of IT Act. Also you can take Overdraft against that Fixed deposit for your business purpose in case required by you, The amount of taxes that can be saved is less, but at least there would some savings.

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8. Educational Loan:

Education expenses are increasing daily. Every parent wants their child to get the best education and why not? They are the future of tomorrow. For the best education, you may definitely take educational loan from a financial or charitable institution. So here comes a benefit.

Income tax act provides benefit to individuals taking the loan be it parent or the child. Also, the befit available is only of the interest paid on the loan. Principal component paid cannot be claimed for tax purpose. If a loan is taken from relative, then the benefit cannot be claimed.

7. Wedding Gift:

A wedding is an eventful occasion for the entire family, especially for the individual getting married. In India, it is a humongous event where the bride and groom are showered with gifts. Under Section 56(2), such gifts are non-taxable. Be it a gift, cash, or cheque, gifts received on getting married do not attract tax. Such gifts can be from your relatives or friends.

6. Income from Agriculture:

Any kind of income from agricultural land defined as per section 10(1) is exempted from tax. Such an income can be related to rent from land, revenue from land, the amount generated through agriculture products, and the amount through a farm building.

5. HUF and Extra Income:

If you are someone who earns secondary income apart from your primary salary income, then you can save money paid as tax for the income apart from salary. For example, money earned from freelancing will constitute a secondary income. You will have to open a separate HUF account for the secondary income. And then you can invest that amount under section 80C to avail tax benefits for that amount.

4. Amount Received Through Inheritance:

The amount received through inheritance in the form of a Will is not taxable in India. Therefore, the amount you receive as per a Will shall not be taxed in India.

3. Expenses to treat Disabled Dependent:

Such deductions are a part of Section 80DD. Fixed deductions of Rs. 75000 are allocated for a person with 40 to 80% disability and Rs. 125000 for more than 80% disability. Such expenses should be for treating a disease, rehabilitation or training. You will have to furnish a certificate of disability to avail of the benefit of such deduction.

2. Expenses for Treating Specific Diseases:

This deduction is part of Section 80DDB. Tax benefits are applicable for expenses incurred towards treating specific diseases such as Dementia, Cancer, Aids, etc. For such diseases, tax deductions up to Rs. 40000 are applicable. In case the expenses are for a dependent senior citizen, then the amount increases to Rs. 1 lakh.

1.Income from Gratuity

Maximum Tax-free Amount: Rs. 20 Lakhs

Gratuity received on retirement or on becoming incapacitated or on termination or any gratuity received by his widow, children or dependents on his death is exempt subject to certain conditions.

The maximum amount of exemption is Rs. 20 Lakhs.

CRUX

Before choosing a tax-saving instrument, it is important to factor in the risk level, lock-in period, liquidity and returns. There is no point in opting for a tax-saver product if doesn’t suit your also individual needs. It also helps to stay updated about the latest developments in tax-saving provisions. Barring Section 80C, many taxpayers are not familiar with the other sections of the Income Tax Act using which they can significantly reduce their tax burden.

I hope that the above tips help you plan your taxes better. Also keep in mind, that if you are a business owner, check your Form 26AS on income tax site to see if someone has deducted your tax. If you are a salaried person, ensure that you collect your Form 16 form your Employer to get a complete detail of the salary breakup and the taxes deducted.

With these tax saving investment tips and tricks, you can invest your wealth wisely and save significantly on your Income Tax. Ensure that you plan your finances and explore a wide variety of saving instruments before filing for your Income Tax Returns. Happy saving!

Please ensure to file your income tax return as it has lots of benefits. I would soon be writing an article on it, so that you do not miss out such an important thing.

For any query, write back to us and we would be happy to help you

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