There are various provisions for allowing certain deductions under the Income Tax Act, 1961 so that the income tax assessee can take the benefit of Tax Planning. These deductions can be claimed by the assessee at the time of filing of Income Tax Return. Hence by claiming these deductions you can save the tax legally. However, there are some conditions subject to which these deductions are allowed. These conditions may be relating to assessee status or some monetary or documentary evidence etc.
These deductions are reduced from the Gross Total Income. After reducing these deductions from Gross Total Income, balance income known as Total Income on which Tax Rate applied as per the income tax slab in force. Hence proper Tax Planning is of great importance for saving tax in a legally valid manner.
With the help of this article, we are going to tell you the ways to save tax. So there are the best seven ways to save tax:
1. Tax Planning by claiming Deduction under Section 80C, Section 80CCC and Section 80CCD
The deductions under section 80C, 80CCC and 80CCD are investment based. The intent of the government behind allowing these deductions is to promote the culture of savings in the Indian people. There are various instruments specified under these sections, in which the assessee can invest and claim the benefit of these deductions.
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As per Section 80CCE, there is a limit on the total deduction that can be claimed by an assessee in totality under these section i.e. Rs. 1,50,000 only. It means the maximum combined deduction under these is limited to Rs. 1,50,000/-.
Under Section 80C various instruments are specified in which you can invest and claim a maximum deduction up to Rs. 1,50,000/-. There is a list of the qualifying investments under section 80C in which you can invest and by claiming deduction can save your tax. Take a Look:-
- Life Insurance Policy
- PPF Accounts
- National Savings Certificate (NSC)
- Infrastructure Bonds
- Sukanya Samriddhi Account
- 5 Year Bank Fixed Deposits (FD)
- Senior Citizen Saving Scheme
- Contribution to Employee Provident Fund
- 5 Years Post Office Time Deposit Scheme
- Equity Oriented Mutual Funds
You can get the Detailed Knowledge of Section 80C from here.
Section 80CCC provides the Deduction for Contribution to Pension Fund. It is allowed to the resident as well as the non-resident assessee.
Section 80CCD provides the deduction for the contribution made under the National Pension Scheme (NPS). An additional deduction of Rs. 50,000 has also been introduced vide Finance Act, 2015 and is applicable from Financial Year 2015-16 (Assessment Year 2016-17) onwards.
2. Deductions under Sections 80D, Section 80DD and Section 80CCD
These sections allowed deductions for the amount expended for insuring his health or for the health of spouse, children or relatives.
Under Section 80D, the assessee can claim the deduction for the amount expended on health insurance of his own or his family (Spouse and children) maximum up to Rs. 25,000 and also for the amount expended on the health insurance of his parents of Rs. 25000. However, if the assessee or his family member or his parents are Resident Senior Citizen then this limit of Rs. 25,000 will be increased to Rs. 30,000.
Under Section 80DD a flat deduction of Rs. 75,000 (Rs. 125000 in the case of Severe Disability) is provided for the expenditure incurred on the medical treatment of a disable dependent. The deduction of Rs. 75,000 (Rs. 125000 in the case of Severe Disability) is the disregard of the actual amount of expenditure.
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Section 80DDB, allow the deduction for the expenditure on the medical treatment of a specified disease. This deduction is allowed for the medical treatment of self or of a dependent. The maximum amount of Deduction is limited up to Rs. 40,000 (In case of senior citizen Rs. 60,000 and in case of Very Senior Citizen is Rs. 80,000)
You can get the Detailed Knowledge of Section 80D, 80DD, and 80DDB from here.
3. Deduction under Section 80E for Education Loan
An assessee can claim deduction under this section if he has taken an Education Loan from a Financial Institution or Charitable Institution (not a relative or friend or any other person/ entity) for the higher education of himself or spouse or children or for the education of whom he is a legal guardian.
There is no limit under this section for the maximum amount of the deduction. However, this deduction is allowed only for the repayment of the interest and not for the principal repayment. Hence one can save his tax by tax planning under section 80E.
4. Deduction under Section 80G for Donation
If you make a donation to the certain Relief Funds or Charitable Institutions, then you can claim this amount of donation under section 80G and save tax.
However, the donation must be in money form i.e. cash or cheque. Donation in kind is not allowed as a deduction under this Section. You also have to submit the NAME, PAN and ADDRESS of the donee for claiming the deduction in your Income Tax Return.
One more important thing is that the CASH DONATION is allowed only up to Rs. 10,000. It means if you make a donation in cash for an amount more than Rs. 10,000 then this amount would not be allowed as a deduction under section 80G. Hence for claiming deduction above Rs. 10,000 you have to make the donation through cheque only.
The various donation specified in the section 80G are eligible for deduction up to either 100% or 50% with or without restrictions as provided under section 80G.
5. Saving Tax through Home Loan
Home Loan is generally accepted as a device for tax planning. There is deduction up to Rs. 1,50,0000 allowed under section 80C for the repayment of principal amount of Housing Loan. However, this deduction is allowed only after the construction is complete and completion certificate has been awarded.
Further, under Section 24, there is deduction allowed for the amount of interest paid on the Home Loan. The maximum tax deduction allowed under section 24 of a self-occupied property is subject to a maximum limit of Rs. 2,00,000. However, in the case of a nonself-occupied property, no maximum limit has been prescribed.
6. Saving Tax on Long Tax Capital Gain
Tax planning of Long Term Capital Gain is of very much importance. The Gain arising from the sale of any Capital Asset [Specified under section 2(14)] which is held for a period more than three years is called as Long Term Capital Gain. The assessee can claim the exemption for the capital gain tax by investing in the specified instruments
The assessee can claim the exemption form the capital gain tax by investing in the specified instruments. The exemption form Tax on Long Term Capital Gain can be claimed under section 54, 54EC AND 54F.
You can get the detailed knowledge of Section 54, 54EC and 54F from here.
7. Exemption under section 10(38) Long Term Capital Gain on sale of Equity Shares
If capital gain arising on the sale of the equity shares (which are held for a period more than one year), then this long-term capital gain will be fully exempt from tax under section 10(38). However if these equity shares are held for a period less than one year, then the tax would be levied @ 15%. However, this transaction must be through a Recognised Stock Exchange.
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So these are the most popular and simple ways through which you can do proper tax planning and save your tax. This article will surely help you in saving your tax. Now I’ll be waiting to hear you in comments, about your suggestion or any query….