Many taxpayers make investments to minimize taxes at the end of the financial year without adequate knowledge of the various available options. The Income Tax Act offers many various allowances which can reduce an individual’s tax liability substantially.
Read the entire article to decode the five smart tax saving tips to help you save tax.
- Complete utilization of Section 80C
Under Section 80C of the Income Tax Act, one can claim a maximum deduction of up to Rs. 1.5 lakhs. You can utilize this section to the fullest by investing in any of the available investment options.
Some of the options are mentioned below:
- Public Provident Fund (PPF)
- Life Insurance Plans such as term insurance, unit-linked insurance plans, and endowment plans
- National Savings Certificate (NSC)
- Equity Linked Savings Scheme (ELSS)
- 5 year fixed deposits with banks and post office
- Tuition fees paid for children’s education, up to a maximum of 2 children
- Options beyond 80C
Apart from 80C, below are few more sections which provide you tax deductions:
- Section 80D – A deduction amount allowed of maximum Rs. 25,000 per year on health insurance premium paid for self, spouse and dependent children and Rs. 50,000 for medical insurance of parents above 60 years
- Section 80G- Any donations made towards specified funds or charitable institutions
- House Rent Allowance
HRA or House Rent Allowance is a component of the salary provided by the employer to his/her employee. If you receive HRA as part of your salary and you live in rented accommodation, then you can claim full or partial HRA exemption.
If HRA forms part of your salary, then the following three is available as a tax- exemption:
- The actual HRA received from your employer
- The actual rent paid by you for the house, minus 10 percent of your salary
- 50 percent of your basic salary (for metro cities) or 40 percent of your basic salary (for non-metro cities)
If you are paying rent and yet not receiving any HRA from your company then the following could be claimed under Section 80GG:
- 25 % of the total income or
- Rs. 2,000 per month or
- Excess of rent paid over 10 percent of total income
- This deduction will not be valid if you, your spouse or minor child owns a residential accommodation in the location where you reside or perform office duties.
- Tax Saving from Home Loans
Even your home loan can help you save tax efficiently. The principal component of your loan can help you claim a deduction of up to Rs 1,50,000 under Section 80C of the Income Tax Act whereas the interest portion offers a deduction up to Rs. 1,50,000 separately under Section 24 of the Income Tax Act.
- LTA or Leave Travel Allowance
Utilize your Leave Travel Allowance (LTA) to the fullest for your holidays. This benefit is available twice in a block of four years. In case you have been unable to claim the benefit in a particular four- year block, you are allowed to carry forward one journey to the next block and claim it in the first calendar year of that block. Thus, you will be eligible for three exemptions in that particular block.
In order to avoid the hassles of last-minute tax planning
- Give your employer details of loans and tax saving investments in advance, to prevent any excess deduction
- Go through Form 16 provided by your employer at the end of each year thoroughly
- It is important to start your tax planning way in advance