3. Undertake Investments
Investments in the capital market and government-mandated schemes can lead to wealth accumulation through higher returns, as well as tax-saving benefits.
You can learn about how to reduce income tax in India under Section 80C by investing in various instruments.
If you are willing to assume the risk factor, you can choose to opt for investment tools of the stock market, such as ELSS (Equity Linked Savings Scheme).
This tool comes in with a three-year lock-in period, and total investments are eligible for tax waivers of up to ₹1.5 Lakh.
Also, if total capital gains are below ₹1 lakh, no tax has to be paid on the profits realised.
You can also choose to invest in 5-year fixed deposits to enjoy such tax exemption benefits, without assuming any risk.
All investments amounting up to ₹1.5 Lakh can be claimed for tax waiver under Section 80C as well.
4. Park your Money in Government Schemes
Numerous government-mandated schemes offer high returns on total investments along with tax waivers. Individuals can claim up to ₹1.5 Lakh spent on such investments as tax waivers on total annual income, under Section 80C of the Income Tax Act.
Tax exemptions can be availed by investing in the following tools:
- Senior Citizen Savings Scheme (SCSS)
- Sukanya Samriddhi Yojana (SSY)
- National Pension Scheme (NPS)
- Public Provident Fund (PPF)
- National Pension Scheme (NPS)
5. Opt for Life Insurance Plans
Life insurance policies enjoy tax waivers on both premium payments and the amount disbursed on maturity, respectively.
Income Tax Act contains provisions under Section 80C for premium payments, and Section 10(10D) for the sum assured received on maturity or premature demise of the insured, whichever is earlier.
Nonetheless, the tax benefits of up to ₹1.5 Lakh spent on annual premium can be claimed under Section 80C, provided it is less than 10% of the total sum assured, if the policy is taken after 1st Aril 2012.
In case the policy was availed before 1st April 2012, claims under Section 80C can be made if the total premium payments do not exceed 20% of the sum assured.
Sum assured realised on such life insurance policies is also exempt from any tax calculations under Section 10(10D), provided it conforms to the above-stated rules.
Purchase or renewal of life insurance cover, along with annuity payments on such policies through yearly salary is eligible for tax waivers of up to ₹1.5 Lakh under Section 80CCC as well.
Under section 80CCD(1), the only certain pension funds under section 23AAB are eligible for waivers of up to ₹1.5 Lakh.
Also, if individuals decide upon investing in Unit Linked Insurance Plans (ULIP), the insurance section enjoys tax waivers, as stated above.
The portion of investment channelled to the stock market also does not attract any long-term capital gains (LTCG) tax.
However, ULIPs come with a minimum lock-in period of five years, prior to which, no money can be withdrawn from the scheme.
6. 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.
However, the total tax exemption on rent paid is calculated as the minimum value of three components, stated as:
- Annual HRA received.
- 50% of the yearly salary if the individual is residing in a metro city (40% in case of non-metro cities).
- Total annual rent – 10% of the basic salary.
In case your monthly income does not include the HRA component, you can claim tax benefits on yearly rental expenses under Section 80GG. The total deductions on income tax are calculated against the minimum value of the following conditions –
- Rent payment of up to ₹5,000 per month.
- 25% of the gross total income.
- Total rent minus 10% of basic salary.
Thus, you can learn about how to save tax in India on salary through house rent allowance by keeping in mind the above-stated points.
7. Donate to Charity
Donations made to specific organisations 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 organisation 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.
8. 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 organisation is registered under Section 29A of the Representation of People Act of 1951.
Such donations have to be made through wired or banks transfers itself, cash deposits are not allowed.
Few other Tax Saving options in India
All these above methods will give an inclusive idea about how to save tax in India. Apart from this, several other pointers should be kept in mind while looking for tax saving methods, such as:
All these points will substantially reduce your total taxable income for a stipulated financial year, as well as help you know more about the various government-mandated provisions. Make sure you submit the income tax return form and Form 16 provided by your employer to get subsequent proceeds.