All You Need to Know About Saving Income Tax
Recommended ways of saving taxes under Sec 80C & 80D
Make investment of Rs 1.5 Lakh under Sec 80C to reduce your taxable income
Buy Medical Insurance & claim a deduction up to Rs. 25,000 (Rs 50,000 for Senior Citizens) for medical insurance premium under Section 80D
Claim deduction upto Rs 50,000 on Home loan interest under Section 80EE
under Sec 80C deductions
- Lowest Lockin of 3 years
- Option to invest monthly
- Higher Interest rates than FD/PPF
Investment options under Sec 80C
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 that can be used to claim deductions. The Section 80C limit is ₹1.5 lakh in a financial year, which means that you can use this entire amount to reduce your taxable income.
For more on tax-saving investments and expenses, read our extensive Section 80C guide.
|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)||8% to 10%||Till Retirement|
|ELSS Funds||15% to 18%||3 years|
Other Tax Saving options beyond Sec 80C
Apart from the deductions available under Section 80C, there are various other Section 80 deductions that can also be claimed to save on income tax. These deductions include health insurance premiums, tax benefits on home loans
- Buy Medical Insurance & claim a deduction up to Rs. 25,000 (Rs 50,000 for Senior Citizens) for medical insurance premium
- Claim deduction upto Rs 50,000 on Home loan interest under Section 80EE
- A home loan would also help you in reducing your taxable income as the principal portion of home loan can be claimed under Section 80C upto Rs 1.5 lakhs and the interest portion can be claimed as a deduction from income from house property
How to plan your tax-saving investments for the year
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, and end up taking hurried decisions. Instead, if you plan at the start of the year, you can make investments that can also help you fulfill your long-term goals. Tax-saving investments should be used to build wealth as well, not only to just save tax.
Use the following pointers to plan your tax-saving for the year:
- Check the tax-saving expenses that you’re already making that you can claim. This includes expenses like insurance premium, children’s tuition fees, EPF contribution, home loan repayment etc
- Deduct this amount from ₹1.5 lakh to figure out how much to invest. The entire amount doesn’t need to be invested if expenses are covering it.
- Choose tax-saving investments on the basis of your goals and profile. ELSS funds, PPF, NPS and fixed deposits are some of the popular options.
This way, you can figure out how much you need to invest to save taxes. 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.
FAQs – Frequently Asked Questions
How Income Tax works in India?Income tax is the unfortunate reality of income. If given a choice, most of us wouldn’t want to pay tax on the income we earn. But we should, because the income tax we pay is an important source of revenue for the government. As citizens of India, we are also consumers of the country’s public infrastructure and facilities. When we want these facilities and infrastructure to improve, it is also our duty and responsibility to contribute towards building and maintaining it. Paying income tax and filing income tax returns is one way of doing that.
We should fulfill this duty with pride because the income tax payers form a very small part of the Indian population. Government data for AY2014-15 shows that only around 1.5% of Indians pay income tax. This is because India is a developing country and 93% of Indian households earn less than ₹2.5 lakh annually, which is the minimum threshold limit for income to be taxable. Furthermore, agricultural income is entirely exempt from tax even when it crosses this ₹2.5 lakh limit. Hence, anyone who earns a taxable income should be proud to be a part of the tax-paying population and should dutifully fulfill this responsibility.
While the government expects you to pay income tax, it also allows you to legally save on income tax. You don’t have to pay income tax if you earn less than ₹2.5 lakh in a year. Income more than that is taxed as per different slabs, with the tax rates going up with increase in income. No matter how much taxable income you earn, there are certain exemptions and deductions available to all individual and HUF taxpayers that can be used to pay less income tax.
How to save taxes in India?
In India, a person can legitimately save his income taxes by investing his money in the popular tax savings options.
1. One of the options is Section 80C. One can invest and claim Rs. 1.5 lakhs in the options available like PPF, NPS, EPF, Life insurance premium, tax-saving mutual funds (ELSS), children’s tuition fees and housing loan principal repaid among others.
2. You can claim deduction up to Rs. 2 Lakhs for the interest component paid by you on the home loan, if any. This deduction can be claimed under section 24 of the Income from house property head.
3. You can avail a benefit of Rs. 25,000 for the health insurance premium paid for yourself, your spouse and your dependent children under section 80D. In addition to it, you can also insure your parent’s health and claim an additional benefit of Rs. 25,000 under section 80D. This deduction can be higher if your parents are senior citizens. Similarly, there are many tax savings options available under different sections of the Income Tax Act.