The new year has not come and the worry of tax begins. And, we all start looking for ways to save our tax. In this article, we are telling you that under the Income Tax Act, how you can save Maximum Tax on Expenses and Investments in legal or valid ways.
Taxes can be reduced in two ways according to government regulations. First exemptions and second deductions. In the first method, exemptions, some of your earnings are not considered taxable. The income you get under certain items is outside the tax net. Such as HRA, LTA, transport allowance, etc.
In other ways i.e. deductions, some special types of expenses will give you a chance to save tax. The more money you put in these fixed methods, the less your taxable income will be. like EPF, PPF, ELSS, NSC, etc.
But the biggest tax concession is tax-free income. According to the income slab, income to a certain extent is outside the tax net.
Income tax slabs below 60 years of age
|Taxable income slabs||Income tax rates and cess|
|Up to Rs 2.5 lakh||Nil|
|Rs 2,50,001 to Rs 5,00,000||5% of (Total income minus Rs 2,50,000) + 4% cess|
|Rs 5,00,001 to Rs 10,00,000||Rs 12,500 + 20% of (Total income minus Rs 5,00,000) + 4% cess|
|Rs 10,00,001 and above||Rs 1,12,500 + 30% of (Total income minus Rs 10,00,000) + 4% cess|
Tax exemption methods are divided into four categories.
- Tax-free Earnings
- Deductions under section 80C
- Deductions Other Than 80C
- Tax-Free Allowances
1. Employer s Part in EPF
The portion deposited on your behalf in the PF account is exempted from tax under Section 80C. The second part deposited in your name in EPF, which is deposited by the employer, also comes under the category of Tax Exemption. That is, even on this you do not have to pay tax. This share of the employer should not exceed 12 percent of your basic salary. If it exceeds this, the remaining amount will be taxed.
2. Profit On Shares Or Equity Mutual Funds
If you have invested in Shares or Equity Mutual Funds, then the profit received after selling them after one year is completely tax-free. Because it is calculated under Long Term Capital Gain. There is no tax on long term capital gains of shares. Not only this, but the dividend received by the shareholders is also tax-free. Because the company paid the Dividend Distribution Tax to the government before paying a dividend to its shareholders.
3. Gifts on Marriage
You do not have to pay any tax on gifts received from friends and relatives in marriage. Provided that these gifts should be received around the date on which you are married. The price of these gifts should not exceed Rs 50,000. If it is more than that gift will also come under the tax net.
4. Interest On Saving Account
There is no tax on interest on your Saving Account up to Rs 10,000 annually.
If it is more than 10,000 rupees then an additional amount will have to be taxed. – Section 80 TTA
5. Interest On NRE Saving and FD Account
Are you an NRI? If yes, then the interest in your NRE (Non-Resident External) account is also fully taxable in India. This includes interest on both Saving Account and FD (Fix Deposit) accounts. TDS is also not deducted due to no tax on the amount deposited in the NRE account. This facility is particularly useful for Indians living in countries like Singapore, UAE, as loans are available in these countries at very low-interest rates (2 to 3 percent). This loan gets better interest in depositing under the NRE account in India and does not have to pay tax.
6. Profit Gained As A Partnership Firm
Do you have a partnership in a firm, then your share received as Share of Profit will be free from tax liability. This is because the company has already paid tax on it. Keep in mind that the tax exemption is only on Profit and not on the Salary you get.
7. Life Insurance Claim Or Maturity Amount
Life Insurance cover is another option to save on tax. If you have Life insurance cover, then the amount received on your Claim or Maturity is fully entitled to tax exemption. The condition is that his premium does not exceed 10 percent of the Sum Assured. If the premium is more than this, the additional amount will be taxed. If you have taken an insurance policy for a disabled family member, then the premium amount can be 15% of the Sum Assured.
8. Amount As VRS
If you have taken VRS (Voluntary Retirement), then you are entitled to tax rebate up to Rs 5 lakh. However, this facility is available only to the employees working in the Government or Public Sector, not to the employees of the private company.
9.Property Through Inheritance Or Will
You do not incur any kind of tax on property, jewelry or cash inherited from your parents.
Similarly, property or cash amount received through a will is also considered as tax-free income.
10. Agriculture Income
There is no tax on income from agricultural land.
This includes the yield from it, the amount of rent received from it. Income derived from agricultural form farming is also entitled to this exemption.
Tax Deductions Section 80C
Under Section 80C of the Income Tax Act, some investments do not have to pay tax on investments and expenses. The total exemption under section 80C can be taken up to Rs 1.5 lakh only. This limit varies from time to time. What are these investments and expenses, let us know.
11. ELSS-Equity Linked Savings Scheme
ELSS is a kind of mutual fund, hence it is also called tax saving mutual fund.
In this, like equity mutual funds, your money is invested in shares. The only difference is that the money deposited in ELSS gets locked for three years.
12. Home loan EMI Principal
The home loan that you have taken to build a house, which is part of the principle money,
It is exempted from tax under Section 80C. Home loan interest is also exempt but comes under section 24, which is mentioned separately below.
13. Stamp Duty and Registration Charges
The Stamp Duty and Registration Charges you pay for buying a house can be included in the 80C deduction. Whether you have bought a house with a home loan or from your capital, in both cases, this tax will be exempt.
14. Infrastructure Bonds
Infrastructure sector companies such as Infrastructure Development Finance Company and India Infrastructure Finance Company etc. issue infrastructure bonds. These companies pay attractive interest on these bonds. The amount invested in them also comes under the tax exemption under Section 80C.
Tax Deductions besides Section 80C
15. Health Insurance
If you have taken the Mediclaim Policy for yourself, your spouse, your children then its premium is also exempt from tax under Section 80D. This rebate is available to the general citizens at a premium of up to Rs 20,000 and Senior Citizen up to Rs 30000.
16. Dependent With Serious Illness
In case of any member of your family suffering from a serious illness, you can get an exemption from tax on the expenses up to Rs 40,000 in his care.
This exemption can be up to Rs 60,000 for a sick senior citizen and up to Rs 80,000 for being a super senior citizen. Diseases like cancer, AIDS, dementia, Parkinson’s, Thalassemia, etc. under this category. (Under section 80 section 80DDB).