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As the famous saying goes ‘ A penny saved is a penny earned ‘. Tax planning is one of the ways which can help you save on taxes and increase your income. The income tax act provides deductions for various investments, savings and expenditure incurred by the taxpayer in a particular financial year. We will discuss some of the avenues which can help you save taxes.
Union Budget 2021 Outcome:
1. Exemption from ITR filing to senior citizens aged 75 years and above, earning only pension and interest income.
2. The income tax department launched pre-filled ITRs with additional details to simplify the return filing process.
3. The due date for filing belated and revised returns is reduced by 3 months. This also means that the IT department will have to process the returns and send a notice under section 143(1) by 31st December.
The most popular tax-saving options available to individuals and HUFs in India are under Section 80C of the Income Tax Act, Section 80C includes various investments and expenses you can claim deductions on – up to the limit of Rs. 1.5 lakh in a financial year.
|5-Year Bank Fixed Deposit||6% to 7%||5 years|
|Public Provident Fund (PPF)||7% to 8%||15 years|
|National Savings Certificate||7% to 8%||5 years|
|National Pension System (NPS)||12% to 14%||Till Retirement|
|ELSS Funds||15% to 18%||3 years|
|Unit Linked Insurance Plan (ULIP)||Varies with Plan Chosen||5 years|
|Sukanya Samriddhi Yojana (SSY)||7.60%||N/A|
|Senior Citizen Saving Scheme (SCSS)||7.40%||5 years|
Apart from the 80C deductions, there are various deductions under Section 80 you can use to save on income tax. Tax benefits on health insurance premiums and home loan interest are a few-
The best time to start planning your tax-saving investments is at the beginning of the financial year.
Most taxpayers procrastinate till the last quarter of the year, resulting in hurried decisions. Instead, if you plan at the start of the year, your investments can compound and help you achieve long-term goals. Remember, tax-saving should be an additional perk and not a goal in itself.
Use the following pointers to plan your tax-saving for the year:
This way, you can figure out how to exhaust the 80C limit. It is best to begin investing in the first quarter of the financial year so that you can spread the investments over the year. Doing this won’t burden you at the end of the year and will also allow you to make informed investment decisions.
Given a choice, most of us wouldn’t want to pay tax on the income we earn. But we should. As citizens of India, we are also consumers of the country’s public infrastructure and facilities, and income tax is an important source of revenue for the government. So, it is our duty and responsibility to contribute towards building and maintaining the public infrastructure. Paying income tax and filing income tax returns on time ensure that.
Income tax department allows reducing of the taxable income of the taxpayer in case the taxpayer makes certain investments or eligible expenditures allowed under Chapter VI A. 80C allows deduction for the investment made in PPF , EPF, LIC premium , Equity-linked saving scheme, principal amount payment towards home loan, stamp duty and registration charges for purchase of property, Sukanya smriddhi yojana (SSY) , National saving certificate (NSC) , Senior citizen savings scheme (SCSS), ULIP, tax saving FD for 5 years, Infrastructure bonds etc
Apart from 80C, various other provisions allow deductions to taxpayer as follows :
80CCD is a subsection of 80C which allows a deduction for contributions to national pension schemes as notified by the central government. The deduction is allowed for contributions made by an employee, employer or voluntary self contribution. The overall limit of deduction allowed in section 80C is Rs 1.5 lakh plus an additional deduction of Rs 50,000 u/s 80CCD (1b) for self contribution to NPS or Atal pension yojana
Maximum deduction allowed varies in different scenarios as below:
Section 24 allows a deduction for home loan interest up to Rs 2 lakh if the house property is self-occupied or vacant whereas if the house is rented, the entire interest amount can be deducted from the ‘Income from house property. This deduction gets redacted to Rs 30,000 if the following conditions are not met (i) Home loan should be taken for purchase or construction of the house property (ii) The loan must be taken after 1st April 1999 (iii) In case of construction of house property, the same should be completed within 5 years.
Salaried employees who receive house rent allowance as a part of salary and make a payment towards rent can claim HRA exemption to reduce their taxable salary wholly or partially.
HRA exemption is allowed least of the below :
For the above calculation, the salary would include basic, dearness allowance and fixed percentage of commission.
For more on tax-saving investments and expenses, read our extensive Section 80C guide.