Income tax is a tax that is imposed on the income earned by individuals, businesses, or other entities. It is a direct tax that is levied by the government on the income earned by individuals, firms, companies, and other legal entities.
The amount of income tax that an individual or business has to pay is based on the income that they earn during a financial year. The income tax is calculated as a percentage of the taxable income, which is the income that is earned after taking into account all the eligible deductions and exemptions.
Saving taxes is a crucial aspect of financial planning, and there are various ways to save taxes in India. Here are some detailed methods that you can consider to save tax in India.
- Invest in tax-saving instruments
You can invest in tax-saving instruments such as Public Provident Fund (PPF), National Savings Certificate (NSC), Equity-Linked Saving Scheme (ELSS), and Unit Linked Insurance Plan (ULIP) to save tax under Section 80C of the Income Tax Act.
a. Public Provident Fund (PPF) – It is a long-term investment scheme offered by the government of India that provides a tax-free return of 7.1% per annum. You can invest up to Rs. 1.5 lakh in a financial year, and the investment made in PPF is eligible for tax deduction under Section 80C.
b. National Savings Certificate (NSC) – It is a fixed income investment scheme offered by the government of India that provides an interest rate of 6.8% per annum. The investment made in NSC is eligible for tax deduction under Section 80C.
c. Equity-Linked Saving Scheme (ELSS) – It is a mutual fund scheme that invests a major portion of its portfolio in equity shares. It has a lock-in period of three years and provides a tax-free return of around 12-15% per annum. The investment made in ELSS is eligible for tax deduction under Section 80C.
d. Unit Linked Insurance Plan (ULIP) – It is an insurance cum investment plan that offers market-linked returns. It has a lock-in period of five years and provides a tax-free return of around 10-12% per annum. The investment made in ULIP is eligible for tax deduction under Section 80C.
- Health insurance
You can claim a tax deduction of up to Rs. 25,000 for the health insurance premium paid for yourself, your spouse, and children. Additionally, you can claim an additional deduction of up to Rs. 25,000 for the health insurance premium paid for your parents. If your parents are senior citizens, then you can claim a tax deduction of up to Rs. 50,000.
- Home loan
If you have taken a home loan, you can claim a tax deduction of up to Rs. 2 lakh on the interest paid on the loan. You can also claim a deduction of up to Rs. 1.5 lakh on the principal repayment under Section 80C. This tax benefit is available for a self-occupied property.
- Donations
Donations made to registered charitable organizations are eligible for a tax deduction under Section 80G. The deduction can range from 50% to 100% of the donated amount, depending on the type of charity and the rules governing the same.
- Rent paid
If you are a salaried individual and live in a rented house, you can claim a deduction on the rent paid under Section 80GG. The maximum deduction available under this section is Rs. 60,000 per annum, subject to certain conditions.
- Education loan
If you have taken an education loan for yourself, your spouse, or your children, you can claim a tax deduction on the interest paid under Section 80E. The entire interest paid is eligible for deduction, and there is no upper limit on the same.
- National Pension Scheme (NPS)
NPS is a retirement-focused investment scheme offered by the government of India. You can invest up to Rs. 2 lakh per annum in NPS and claim a tax deduction under Section 80CCD. The deduction available is up to 10% of your salary, subject to a maximum of Rs. 1.5 lakh per annum