People are always looking for methods to save income tax. No one wants to miss out on opportunities to save money on taxes. However, different people have different preferences when it comes to doing so. They sometimes adhere to the tactics they’re familiar with, and as a result, they miss out on more fruitful tax-saving opportunities.
As a result, this essay is aimed at those who wish to learn more about ways to save money on income taxes. If you’re wondering how to save money on income tax in India, keep reading to learn 32 tax-saving tips for business owners and salaried staff.
Best Ways to Save Income Tax in 2021-22
What is the definition of income tax?
The government receives a percentage of your earnings in the form of income tax. This tax is imposed on a yearly basis. This money is used by the government to carry out administrative activities.
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Guide To Save Income Tax In India:
In India, there are two ways to save money on taxes:
By Claiming Expenses:
- To save money on taxes, you’ll have to claim the expenses you’ve incurred.
Investing in Tax-Saving Instruments:
- The government encourages citizens to save money on taxes by investing in tax-saving instruments designated under section 80C of the Internal Revenue Code. This manner, you can assure that you have some type of investment while also avoiding spending too much money on taxes.
Legal Ways to Save Income Tax in India:
There are several ways to save money on taxes in 2021-22 and 2022-2023, as listed below. They are divided into three categories and differentiated for salaried employees and business owners. Read the following ideas if you want to know how to save income tax and other taxes in India besides 80C. Due to annual revisions, there may be minor deviations in these points.
1. Tax Benefits of a Home Loan:
If you plan your house loan correctly in compliance with section 80C, you can save money on taxes. Section 80C sets a maximum of Rs. 1.5 lakhs for the principal amount, and section 24 sets a limit of Rs. 2 lakhs for the interest amount. Sections 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80CCG, 80G provide tax saving opportunities. For each part, there is a list of tax-saving choices.
2. Savings Account Interest:
Interest generated on a savings account is tax-free up to a maximum of Rs. 10,000. This is the total of all savings bank accounts. In the case of older citizens, this ceiling is increased to Rs. 50000.
3. Income Through NRE Account Interest:
In India, non-resident Indians have NRE accounts. They get interest on the amount they have accumulated as well as the amount they have invested as a fixed deposit. Such a sum is not taxable due to the Indian government’s liberal attitude toward NRIs. The amount of interest is referred to as tax-free income.
4. Money Received from a Life Insurance Policy
Money from a life insurance policy can be received at any time, including when the policy matures or when the claim amount is received. If the premium does not exceed 20% of the sum covered, the amount received is tax-free. This is true for policies issued prior to April 1, 2012. The amount reduces to 15% for plans issued after April 1, 2012.
5. Education Scholarship
Under Section 10 of the Internal Revenue Code, such an amount is tax-free (16). In this case, there are no restrictions because the entire sum received under a private or public scholarship is tax-free.
6. Amount Received From Shares or Amount Received From Equity Mutual Funds
If your long-term capital gain exceeds Rs. 1 lakh, you’ll have to pay a 10% tax.
7. Dividends on stocks or equity mutual funds:
Dividends on stocks or equity mutual funds are tax-free.
8. Wedding Gift:
A wedding is a joyous moment for the entire family, particularly for the bride and groom. It is a huge occasion in India, where the bride and husband are showered with gifts. Such gifts are exempt from taxation under Section 56(2). Gifts received on your wedding day, whether in the form of a gift, cash, or a check, are tax-free. These gifts can come from family or friends.
9. Agriculture Income:
Any type of income from agricultural land, as described in section 10(1), is tax-free. Rent from land, revenue from land, the amount earned through agriculture products, and the amount generated through a farm building are all examples of such income.
10. HUF and Extra Income:
If you have a secondary income in addition to your primary salary, you can save money by reducing the amount of tax you pay on that income. Money obtained via freelancing, for example, will be considered a secondary source of income. For the secondary income, you’ll need to open a separate HUF account. Then you can put that money into an investment under section 80C to get tax benefits on it.
11. Amount Received Through Inheritance:
In India, the sum acquired through inheritance in the form of a Will is not taxable. As a result, the cash you receive as a result of a Will is not taxed in India.
12. Provisions Under Section 80C:
The government of India offers a facility to invest Rs. 1,50,000 under section 80C of the Income Tax Act in order to encourage savings. As a result, investing in tax-saving choices under Section 80C allows you to save money on income taxes while also making investments for the future. Here’s a rundown of some of the most popular tax-saving investing options under Section 80C.
- National Pension Scheme
- Public Provident Fund
- National Savings Certificate
- Premium Paid for Life Insurance policy
- Fixed deposit for a duration of five years
- Sukanya Samariddhi account
- Children’s tuition fees
- Equity Linked Savings Scheme
- Home loan’s principal amount
Here is a list that showcases which type of investment will fetch you how much returns with the respective lock-in period.
5-Year Bank Fixed Deposit
- Returns: 6% to 7%
- Lock-in Period: 5 years
Public Provident Fund (PPF)
- Returns: 7% to 8%
- Lock-in Period: 15 years
National Savings Certificate
- Returns: 7% to 8%
- Lock-in Period: 5 years
National Pension System (NPS)
- Returns: 12% to 14%
- Lock-in Period: Till Retirement
- Returns: 15% to 18%
- Lock-in Period: 3 years
13. Extra Contribution to National Pension Scheme:
Contributions to the National Pension Scheme are usually deductible under Section 80C, which has a limit of Rs. 150000. You can, however, invest an additional Rs. 50000 in the National Pension Scheme, which is tax-free.
14. Interest from Provident Funds:
Interest from a provident fund is not taxed. You must wait five years before withdrawing money from your Provident Fund.
15. Loan for Educational Purposes:
This is covered by section 80E of the Income Tax act. The amount of interest paid on a student loan is not taxable. There is no set limit for this type of category.
16. Health Insurance Premium:
Section 80D of the tax code is dedicated to health insurance tax deductions. Some of the money spent on health insurance premiums is not tax deductible. This amount fluctuates from year to year. Premiums paid for senior citizen health insurance can help you save money on taxes.
17. Expenses to treat Disabled Dependent:
Section 80DD allows for such deductions. A person with 40 to 80 percent disability is eligible for a fixed deduction of Rs. 75000, while a person with more than 80 percent disability is eligible for a fixed deduction of Rs. 125000. These costs should be incurred for the treatment of a sickness, rehabilitation, or training. To take advantage of this deduction, you will need to provide a certificate of disability.
18. Expenses for Treating Specific Diseases:
Section 80DDB allows you to deduct expenses for treating specific diseases. Expenses incurred to treat specified conditions such as dementia, cancer, and HIV/AIDS are eligible for tax benefits. Tax deductions of up to Rs. 40000 are available for such diseases. The sum doubles to Rs. 1 lakh if the expenses are for a dependent older citizen.
19. Money Donated to Charity:
Donating money to qualified charities can help you save money on taxes. Section 80G applies to this deduction. To be eligible for the benefit, you must have a valid certificate from the charity organisation.
20. Money Spent on Political Party Donation:
Tax deductions for money spent on making a political party donation have no maximum limit. Section 80GGC allows for such deductions. A donation of this size entitles you to a full tax deduction.
Tips for Business Owners on How to Save Money on Taxes:
For a businessperson, here is a list of tax-saving choices.
21. Profit Distribution in Partnership Firms:
When a partnership firm makes a profit and the business owners elect to distribute the profit among themselves, no tax is withheld from the partners.
22. Travel Expenses:
To save money on taxes, company owners can claim travel expenses as business expenses.
23. Food Expenses:
To save money on taxes, company owners can claim food expenses as business expenses.
Tax-Saving Tips for Salaried Individuals:
For salaried employees, here is a list of tax-saving solutions.
24. Leave Travel Allowance:
Employees can utilise this function to pay for their spouse’s, children’s, and parents’ travel tickets. Siblings are only covered if they are financially reliant on the paid individual. This is covered in section 10(5).
25. When HRA is Included in Salary:
To take advantage of this benefit, you must live in a rented apartment and keep all applicable receipts. It’s covered by Section 10(13).
26. When HRA Isn’t Included in Salary:
- Deducting rent from 10% of revenue,
- A monthly flat charge of Rs. 5000,
- 1/4th of total income. Section 80GG allows for certain deductions.
27. Amount Received from Gratuity:
Gratuity money is tax-free up to a certain amount. The tax-free gratuity limit is Rs. 20 lakhs.
28. Food Coupons:
Food coupons, also known as meal coupons, are not taxed up to a certain amount. They are tax-free up to a value of Rs. 2600.
29. Standard Deduction:
A standard deduction of Rs. 40000 is available. This is the most you can spend.
30. Company Leased Car:
Using a company leased car can help you save money on taxes.
31. Telephone and Internet Expenses:
Telephone and Internet expenses can be used to obtain tax benefits.
32. Amount Received Under the Voluntary Retirement Scheme:
Many persons prefer to take a pay-out under the Voluntary Retirement Scheme. The money received through the Voluntary Retirement Scheme is tax-free up to a ceiling of Rs. 5 lakhs.
Frequently Asked Questions Related to Saving Income Tax?
Which are the different types of income classifications?
Salary income, capital gains income, profit or gains from a business or profession, house property income, and money obtained from other sources are the five categories of income.
Do I have to worry about saving money on income tax if my annual income is less than Rs. 250000?
Tax rates are subject to vary on a yearly basis. A individual earning less than Rs. 250000 is exempt from paying tax as of February 2020, according to the tax slab. However, this does not rule out the possibility of filing a tax return. Even if the annual income is not taxable, it is a good habit to file income tax forms.
Can I save tax for the premium paid for insurance?
Yes, paying for life and health insurance can help you save money on taxes. Such features have been put in place to encourage people to purchase life and health insurance policies.
Is it possible to save money on taxes by investing in mutual funds?
Yes, mutual funds can be seen as a tax-advantaged investment. Make certain to check whether the mutual funds are tax-advantaged. When it comes to investing in mutual funds with the goal of saving taxes, Equity Linked Saving Schemes are advantageous.
What exactly are ULIPs?
ULIPs (Unit Linked Insurance Plans) are a type of unit-linked insurance plan. They’re insurance plans that are linked to the stock market. You can save money on taxes while also having the opportunity to watch your money increase.
Is there any tax-saving instrument related to the post office?
Yes, the post office is linked to a tax-saving tool. You can invest in a five-year time deposit at a post office, just like you may in a five-year fixed deposit. The interest rates on a post office time deposit are higher than those on a fixed deposit tax saver instrument. Visit BuzTak for more tips.