How to save on Income Tax in India
‘The hardest thing in the world to understand is the Income Tax.’ – Albert Einstein
But don’t worry as I, your own CFO (Apna CFO), is here to discuss some avenues to help you save taxes under the old and new tax regimes this tax season.
Tax saving tips under the new tax regime
- Employer’s Contribution to NPS under Section 80CCD(2)
An employer can contribute to the NPS even if they have contributed to the PPF and EPF Funds. The contribution made by the employer may be equal to or higher than the contribution made by the employee.
If you are a central government employee, you can claim a deduction of up to 14% of your employer’s salary (Basic + DA).
However, if you are a non-government employee, you can claim a maximum of 10% of your salary (Basic + DA).
The amount that your employer contributes will be deducted from your employee pay slip and deposited into your NPS account. There is an overall threshold of Rs. 750,000 for employer contribution to PF, NPS and Superannuation.
- Amount paid or deposited in the Agniveer Corpus Fund under Section 80CCH(2)
The Income Tax Act states that the total amount the applicants and the central government contribute to the Agniveer Corpus Fund will be eligible for deduction under Section 80CCH(2).
The Act also states that an exemption will be allowed if the applicant or the nominees receive such an income under the Agnipath Scheme.
Soldiers enrolled in this scheme will get all the benefits like ration, risk and hardships, travel etc. Death and disability compensation is also available for the candidates.
This deduction is now available under both regimes.
- Family pension income
Family pension refers to the amount the employer pays to the employee’s family in the event of the employee’s death.
A sum equal to 1/3rd of the income received by the employee or Rs. 15,000, whichever is lower among the two, will be allowed as a deduction under Section 57(iia).
- Interest on Home Loan on Let-out property under Section 24
Under the new tax regime, interest on a home loan for self-occupied property is prohibited under Section 24. Whereas, interest on a home loan on the let-out property is allowed as a deduction without any upper limit.
- Transport allowance and Conveyance allowance
Transport allowance means the allowance given to the employee by the employer to compensate for the travel expenses incurred for commuting between his place of residence and work.
The exemption allowed is Rs. 1,600 per month and Rs. 3,200 per month for a physically challenged employee commuting from his place of residence to the place of duty.
Conveyance allowance is granted to meet the expenditure incurred during the performance of office duty. However, conveyance allowance is exempt only to the extent of actual expenditure incurred.
- Voluntary Retirement Scheme under Section 10(10C)
A voluntary retirement scheme is offered by employers so that employees can retire voluntarily. The amount exempt under this Section is Rs. 5 Lakhs.
- Gratuity under Section 10(10)
For individuals who are Government employees, the amount of gratuity received is fully exempt. Whereas, for individuals who are in private employment, the exemption on the same depends on whether they are covered under the Payment of Gratuity Act.
- Leave Encashment under Section 10(10AA)
Leave encashment is when the employee encashs all the paid leaves at the time of his retirement or resignation. The maximum amount exempt is Rs. 25 Lakhs and the amount exceeding will be taxable.
Tax saving tips under the old tax regime
- Avail a Home Loan
Availing a home loan is associated with dual benefits, as it comes with reduced tax liability, along with having own home. Many government-mandated schemes such as PMAY (Pradhan Mantri AwasYojana) and DDR (Delhi Development Authority) Housing scheme caters towards making housing affordable in India, while Section 80C and 24(b) diminish monetary liability through reduced tax burden.
Total annual income spent towards repayment of the principal borrowed amount is eligible for deductions of up to Rs.1.5 Lakh under Section 80C.
Tax exemption on interest section of the home loan is available under Section 24(b), valued up to Rs. 2 Lakh annually.
Additionally, if you let-out the newly acquired property on rent, the entire interest component is exempt from annual income tax calculations.
Individuals purchasing a property for home construction can also benefit from Section 24(b), provided the construction process is completed within five years.
If you are a first-time homeowner, you can claim an additional reduction on your annual tax liability under Section 80EEA.
- Claim exemptions if you live on Rented Premises
Tax exemptions under House Rent Allowance (HRA) are granted under Section 10(13A). Your salary break-up must include an HRA component to avail compensation against the same. In case your monthly income does not include the HRA component; you can claim tax benefits on yearly rental expenses under Section 80GG.
- Donate to Charity
Donations made to specific organizations in cash are eligible for tax waiver amounting to Rs. 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.
- Support a Political Party
All donations made to political parties or contribution to electoral trusts are eligible for tax waivers, under Section 80GGC of the Act of 1961.The entire amount donated to your preferred political party is exempted from any income tax calculations, provided the organization is registered under Section 29A of the People Act of 1951.
- Buy a Health Insurance Policy
Tax benefits are extended by the government to stimulate individuals to avail such insurance policies, which allow them to get quality healthcare at premier medical institutions for zero or low additional charges. Individuals can claim tax deductions on the portion of their annual taxable income spent towards premium payments under Section 80D. Different amounts are exempted from such income tax calculations, depending upon the age of the insured.
| PARTICULARS
|
AMOUNT |
| Medical Insurance for self and family
|
Rs. 25,000 (Rs. 50,000 in case of senior citizens) |
| Medical Insurance for parents
|
Rs. 25,000 (Rs. 50,000 in case of senior citizens) |
| Preventive Health Checkup
|
Rs. 5,000 per year |
| Medical expenditure incurred towards parents (senior citizens) not having health insurance
|
Rs. 50,000 |
- Investment options under Section 80C
The most popular tax saving options available to individuals and HUF(s) in India are under Section 80C of the Income Tax Act. Section 80C includes various instruments and expenses you can claim deductions on – up to the limit of Rs. 1.5 Lakhs 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)
|
8.20% | N/A |
| Senior Citizen Saving Scheme (SCSS)
|
8.20% | 5 years |
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