4 March 2023
Highlight: Learn what income tax is, how it works, and how to save money on income tax in India.
Income tax is a percentage of an individual’s or business’s earnings that is paid to the government in order for it to run the country smoothly, fund infrastructure development, pay salaries to state and central governments, and so on. All of these taxes are imposed as a result of legislation. The law governing the provisions of our income tax is known as income tax.
Individuals, corporations, businesses, and all other establishments that generate income must pay income tax. The Income Tax Act of 1961 governs India’s collection, recovery, and administration of income tax. Despite the fact that income tax is paid monthly from monthly earnings, it is calculated annually.
The amount of income tax a person must pay is determined by a number of factors.
You must pay close attention to India’s available tax-saving financial products if you want to save a significant portion of your income. If you work as a salaried professional in India, you can save money on taxes by using sections 80C, 80CCC, and 80CCD.
If you believe you have been paying a significant portion of your income in taxes, it is highly likely that you have not properly planned your taxes. You can save taxes in a number of ways that are legal. The Income Tax Act of India allows citizens to save money on taxes by deducting certain expenses. The deductions are available to claim when filing a tax return.
Here are some tax saving options for salaried individuals:
Section 80C, Section 80CCC, and Section 80CCD deductions
These three sections allow Indian citizens to save money on income taxes. People can claim certain deductions if they invest in the instruments listed in Sections 80C, 80CCC, and 80CCD. PPF Accounts, Pension Plans, Life Insurance Policies, NSC (National Savings Certificate), 5 Year Tax Saving Fixed Deposits, and so on are some of the popular instruments that people invest in.
Citizens can claim a maximum deduction of Rs.1,50,000 under any one of the three sections or all three sections combined. Section 80CCD allows people who invest in the National Pension Scheme to claim an additional deduction of Rs.50,000.
Taxpayers can deduct the cost of medical treatment from their taxable income. People’s medical expenses become tax-free if they provide their medical bills. Medical Allowance is also provided to all employees by their employers. In a given year, people can claim a maximum of Rs.15,000 in medical bills.
Section 80D, Section 80DD, and Section 80DDB of the Internal Revenue Code allow taxpayers to deduct income spent on health insurance for themselves or a family member. The amount of the deduction varies by section and is determined by the type of insurance policy purchased by the taxpayer.
Most people are advised to save money on taxes by taking out a home loan because deductions can be claimed under three different sections, resulting in significant savings. People who take out a home loan can deduct the principal loan amount from their taxes under Section 80C of the Internal Revenue Code. People can deduct the interest they’ve paid on their home loans under Section 24.
In some cases, a maximum deduction of Rs.2,00,000 is allowed, while in others, there is no limit to the deduction that can be claimed on the amount spent on home loan interest.
Shares and Mutual Funds
Investing in stocks and mutual funds can help people save money on taxes. Citizens earning less than Rs.12 lakhs annually are eligible for an additional deduction under Section 80CCG of the Income Tax Act if they invest in shares of certain companies and certain mutual funds. The deductions are available to first-time investors under the Rajiv Gandhi Equity Savings Scheme.
Citizens of India can save money on taxes by claiming deductions on the amount they spent on donations for social or charitable purposes or contributing to the National Relief Fund. Section 80G of the Income Tax Act allows them to claim such deductions. The Ministry of Finance lists the organizations to which taxpayers can donate, and whether or not deductions are allowed depends on the purpose for which the money was donated. Donations that are made in kind are not eligible for tax deductions. Taxpayers can deduct up to Rs.10,000 in cash donations, but they must donate more than Rs.10,000 to be eligible for a deduction.
Leave Travel Allowance (LTA)
Taxpayers who receive LTA from their employers are entitled to tax-free LTA. It can be claimed twice in a four-year period. They must travel anywhere in India during their leave period to claim it.
These are a few of the most common methods for people to save money on their taxes. Taxpayers who carefully plan their income, investments, expenses, and taxes may be able to save a significant amount of money. It is strongly advised against using illegal methods to save money on taxes.
For instance, if people try to save income tax by not paying it at all, the money they save will be considered unaccounted money or black money, which can cause a slew of problems if discovered.
Learn about your in-hand salary and CTC before diving into saving income taxes!
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