Saving tax is an important aspect of financial planning for individuals and businesses alike. With the right strategies, you can minimize your tax liability and maximize your savings. In this blog, we will discuss some effective ways to save tax.
- Invest in tax-saving instruments
One of the most popular ways to save tax is to invest in tax-saving instruments. These include Public Provident Fund (PPF), National Savings Certificate (NSC), Equity-Linked Saving Scheme (ELSS), and Tax-Saving Fixed Deposits (FD). These investments not only help you save tax but also offer attractive returns. By investing in these instruments, you can claim deductions under Section 80C of the Income Tax Act.
- Claim deductions under Section 80D
Section 80D of the Income Tax Act allows you to claim deductions for medical expenses. You can claim deductions up to Rs. 25,000 for medical insurance premiums paid for yourself, your spouse, and your dependent children. Additionally, you can claim an additional deduction of Rs. 25,000 for medical insurance premiums paid for your parents. If your parents are senior citizens, the deduction limit increases to Rs. 50,000.
- Make use of tax benefits on home loans
If you have taken a home loan, you can claim deductions under Section 24 and Section 80EE of the Income Tax Act. Under Section 24, you can claim a deduction of up to Rs. 2 lakh on the interest paid on your home loan. Under Section 80EE, first-time homebuyers can claim an additional deduction of up to Rs. 50,000 on the interest paid on their home loan.
- Donate to charity
Donating to charity not only helps you give back to society but also helps you save tax. Under Section 80G of the Income Tax Act, donations made to specified charities and NGOs are eligible for deductions. The amount of deduction varies depending on the type of charity and the amount donated.
- Plan your investments and expenses
Planning your investments and expenses can go a long way in saving tax. For instance, if you plan to sell a property, it’s better to hold it for more than two years to save on capital gains tax. Similarly, if you have a home loan, it’s advisable to pay off the principal amount as early as possible to claim deductions under Section 80C.
- Opt for the New Tax Regime
In the budget 2020, the Indian government introduced the new tax regime, which offers lower tax rates but without any deductions. If you don’t have many tax-saving investments and don’t want to claim deductions, you can opt for the new tax regime. The new tax regime offers lower tax rates for different income slabs.
- Invest in National Pension Scheme (NPS)
National Pension Scheme (NPS) is a retirement-focused investment scheme that offers tax benefits. You can claim a deduction of up to Rs. 1.5 lakh under Section 80C for your contributions to NPS. Additionally, you can claim an additional deduction of up to Rs. 50,000 under Section 80CCD(1B) for your contributions to NPS.
- Claim House Rent Allowance (HRA)
If you are a salaried individual who lives in a rented house, you can claim House Rent Allowance (HRA) to save tax. The HRA is a part of your salary that is exempt from tax. The amount of HRA that you can claim depends on your salary, the rent paid, and the city you live in.
- Make use of Tax Deductions on Education Loans
If you have taken an education loan to fund your or your child’s education, you can claim tax deductions under Section 80E of the Income Tax Act. You can claim deductions for the interest paid on the education loan. The deduction is available for a maximum of eight years or until the loan is fully repaid, whichever is earlier.
- Utilize Tax Deductions for Medical Expenses
Apart from the deductions available under Section 80D, you can also claim tax deductions for medical expenses incurred for specific ailments under Section 80DDB. The deduction amount varies depending on the ailment and the age of the person. The deduction can be claimed for medical expenses incurred for yourself, your spouse, children, and dependent parents.
Final thoughts
Saving tax requires a thorough understanding of the tax laws and careful planning of your investments and expenses. By investing in tax-saving instruments, claiming deductions, making use of tax benefits, and planning your finances, you can reduce your tax liability and maximize your savings. However, it’s important to consult a financial advisor before making any investment or tax-saving decision to ensure that it aligns with your financial goals and risk appetite.
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Frequently asked questions about tax-saving:
- What is the maximum amount of deduction allowed under Section 80C?
Under Section 80C of the Income Tax Act, the maximum amount of deduction that can be claimed is Rs. 1.5 lakh for the financial year 2022-23.
- Can I claim deductions for medical insurance premiums paid for my siblings?
No, you can only claim deductions for medical insurance premiums paid for yourself, your spouse, and your dependent children.
- Can I claim tax deductions on the interest paid on a personal loan?
No, you cannot claim tax deductions on the interest paid on a personal loan. Tax deductions are only available on specific types of loans like home loans, education loans, and business loans.
- Can I claim both HRA and deduction for home loan interest?
Yes, you can claim both HRA and deduction for home loan interest if you are paying rent for a house and also have a home loan for another property that is self-occupied.
- Can I claim tax deductions on donations made to any charity?
No, you can only claim tax deductions on donations made to specific charities and NGOs that are registered under Section 80G of the Income Tax Act.
- Can I claim tax deductions for medical expenses incurred for my siblings?
No, you can only claim tax deductions for medical expenses incurred for yourself, your spouse, children, and dependent parents.
- Can I switch between the old and new tax regimes every year?
Yes, you can switch between the old and new tax regimes every year. However, you need to make a declaration of your choice at the beginning of each financial year.
