How to save on income tax in India?

How to save on income tax in India?

Income tax is levied on individuals and businesses by the government and it falls under the category of direct tax. The Indian government uses tax money to develop infrastructure, fund education, and numerous other welfare schemes for the benefit of citizens. Anyone who earns an income is subject to an income tax. This income can be from property, business, salary, capital gain, and other sources such as interest and lottery. The answer to how to save tax depends on your income sources.

Income tax slabs in India 2023

Income tax is levied on individuals based on income tax slabs. These slabs are categorized based on income and the individual’s age; below 60 years, between 60 years and 80 years, and 81 years and above. In India, the tax rates are specified for both residents and non-residents. For non-residents, the tax rates will be the same regardless of their age so they will have the same tax rate, unlike residents where the rate depends on age.

The income tax slabs change every year and are announced by the finance minister. Depending upon the income and age, you can think of how to save tax on salary and thereby pay a lower income tax for that financial year. It is possible to save income tax on several categories as per the Income Tax Act. The following are the income tax slabs for the assessment year 2023-2024.

The tax slabs for individuals who are below 60 years of age are as follows.

Income tax slab Income tax rate
Up to Rs. 2,50,000 Nil
Rs. 2,50,000 to Rs. 5,00,000 5%
Rs. 5,00,001 to Rs. 10,00,000 20%
Rs. 10,00,001 and above 30%

The tax slabs for those aged 60 years and above but less than 80 years of age are as follows.

Income tax slab Income tax rate
Up to Rs. 3,00,000 Nil
Rs. 3,00,001 to Rs. 5,00,000 5%
Rs. 5,00,001 to Rs. 10,00,000 20%
Rs. 10,00,001 and above 30%

The tax slabs for those aged over 80 are as follows.

Income tax slab Income tax rate
Up to Rs. 5,00,000 Nil
Rs. 5,00,001 to Rs. 10,00,000 20%
Rs. 10,00,001 and above 30%

For a Hindu Undivided Family which includes BOI, AOP, and artificial juridical person, the tax slabs are as below.

Income tax slab Income tax rate
Up to Rs. 2,50,000 Nil
Rs. 2,50,000 to Rs. 5,00,000 5%
Rs. 5,00,001 to Rs. 10,00,000 20%
Rs. 10,00,001 and above 30%

Ways to reduce Income tax in India

When it comes to filing your income tax you may be wondering how to save income tax on salary. It is possible to save a substantial amount of tax to be paid when you are filing your returns. The following are some of the most effective ways how to reduce income tax for a salaried individual in India.

Buy a life insurance policy

If you are thinking about how can I save income tax, then know that buying a life insurance policy can help you save on the premium payments and how much you receive on maturity. As per the Income Tax Act Section 80C, you can save on your premium payments and as per Section 10 (10D), you can save on the amount you receive on maturity.

How much we can save under 80C? You can claim a maximum of Rs. 1.5 lakh on the annual premium you pay on your life insurance plan. Note that it has to be lower than 10% of the total assured sum and the policy must have been purchased after 1st April 2012. In case the life insurance policy was purchased before that, you can make a claim if it is lower than 20% of the total assured sum.

When you renew or purchase a life insurance policy, the annual payments made with your annual salary can waive an additional Rs. 1.5 lakh as per Section 80CCC. As per Section 80CCCD(1), particular pension funds can be waived up to Rs. 1.5 lakh as per section 23AAB. Additionally, if you decide to invest in ULIPs, then you can enjoy a lower income tax.

When you invest in the stock market, i.e. when a part of it goes to that, you don’t need to pay the long-term capital gains or LTCG tax. When you invest in a ULIP, you cannot withdraw from the scheme before 5 years because that is the lock-in period. The lock-in period can be longer which means until the period is over you cannot withdraw from it.

Get a home loan

Another way save maximum income tax is to get a home loan. You can get benefits under Section 80C and Section 24(b). With a home loan, you get to purchase your dream home and pay a lower income tax. You can purchase a house under the Delhi Development Authority (DDR) and Pradhan Mantri Awas Yojana (PMAY).

You can get income tax deductions of up to Rs. 1.5 lakh on the principal amount that you repay when you take a home loan. This is on the total annual income and as per Section 80C. You can also get a deduction of up to Rs. 2 lakh under Section 24(b) on the home loan that you pay. If you have purchased a new property and have rented it to someone else, the interest is not included in the annual income tax calculation.

When the stamp duty value of the property is lower than Rs. 45 lakh, you can get another Rs. 1.5 lakh exemption from the income tax. This is one of the ways how can salaried person save tax in India. It is also another way other than 80C how to save tax. This can also be a way how to save tax for salary above 10 lakhs.

House rent allowance

The house rent allowance or HRA must be on your salary slip for you to claim it. According to Section 10(13A), you can get tax exemptions on the HRA. How much tax you save on your rent will depend on how much HRA is received annually, the total annual rent, and 50% of your annual salary if you are residing in a metro city or 40% of your annual salary if you are residing in a non-metro city.

This is one of the ways how to save tax apart from 80C. Even if you do not have HRA in your salary slip, you can use Section 80GG to claim tax exemptions based on how much you pay for rent annually. The tax deductions are calculated based on a minimum of 25% of total income, 10% of basic salary subtracted by total rent, and payment of rent of a maximum of Rs. 5,000 per month.

Invest in government schemes

You can invest in various government schemes to save on your income tax. It is how to save tax for salary above 20 lakhs. You can claim up to Rs. 1.5 lakh when you invest in such schemes under Section 80C. Some of these government schemes include National Pension Scheme (NPS), Senior Citizen Savings Scheme (SCSS), Public Provident Fund (PPF), and Sukanya Samriddhi Yojana (SSY).

Leave travel allowance

The LTA is a way how to save tax on 10 lakh income. This is applicable only if you get LTA from your employer. It is possible to claim it only twice during a 4-year tenure and save on income tax. For you to claim it, you can travel within India during the leave time. You can travel with your family members such as children, parents, and spouse.

Finance higher education

As per the Income Tax Act Section 80E, you can get a deduction on your income tax on the interest you pay when you take a loan to fund your children’s, spouse’s or own higher education. This deduction can be taken for a maximum of 8 years or until you pay the interest depending on whichever is earlier. Note that there is no cap on how much can be claimed for a tax deduction.

Make contributions to political parties

When you support any political party through donations, you can get a tax waiver. This is specified in Section 80GGC of the Income Tax Act. The complete amount is exempted from income tax as long as it is registered under Section 29A of the Representation of People Act of 1951. You must ensure that such donations must be done through banks or wired transfers.

Purchase a health insurance policy

Buying a health insurance policy is beneficial to every Indian citizen as ailments and diseases are unexpectedly cropping up. For you to be prepared for the worst and save your family from the financial burden, purchasing a health insurance policy is key. This is also how to save tax for salaried employees.

As per Section 80D of the Income Tax Act, you can avail of tax deductions on a part of how much you pay on the health insurance policy premium. How much tax is exempted depends on the age of the insured person. If you do not have a health insurance policy, it is better to take it sooner rather than later so that you can understand how to save money from income tax.

Make donations to charities

Making donations to one or more charities is how to save tax other than 80C. The donations can be made in cash and the waiver can be up to Rs. 2,000 as mentioned in Section 80G of the Income Tax Act. If you make a transfer to the charity organization through wire or bank then you can get complete or at least a partial tax exemption according to income tax rules.

The complete exemption also applies when you are transferring money through cheque or draft to the charity organisation. According to Section 80GGA, you can get an income tax deduction when you donate to an organisation that is working on the development of rural areas or scientific research of any sort.

Note that the 80G certificate must be presented for you to claim the tax deduction. If you donate to the National Relief Fund, you can claim deductions on whatever amount you donate. You can claim 50% of the amount donated to NGOs. You can also claim 10% of the total income adjusted. This is how to reduce income tax on salary.

Invest your money in shares and mutual funds

When you invest your hard-earned money in different places you get to hit a jackpot because not only does it mean better returns but it also provides income tax benefits. This is particularly true when you invest in government schemes and the capital market. Therefore, instead of investing in one place, investing in various instruments is key for maximum benefits in the long run.

For example, you can choose Equity Linked Savings Scheme or ELSS for investment. You should assess the risk factors involved before doing so. If you invest in ELSS, you can get a tax exemption of up to Rs. 1.5 lakh. It comes with a 3-year lock-in period. When your capital gains are lower than Rs. 1 lakh, you don’t need to pay any income tax on the profits that are generated.

For no risks, you can invest in 5-year fixed deposits if that is feasible for you. This enables you to get multiple tax exemption benefits. Note that you can claim a tax waiver for any of the investments that are up to Rs. 1.5 lakh. This can be done under Section 80C. This is how to save tax on fixed deposit interest.

Those who earn less than Rs. 12 lakh annually can also get an additional deduction according to Section 80CCG. This is only applicable if they invest money in certain companies and mutual fund schemes and it is only for those who are investing for the very first time. The information regarding this is provided in the Rajiv Gandhi Equity Savings Scheme and this is how to save money on taxes.

Key Takeaways

Now you know how to save tax for salaried person and how to save income tax in general. As tax regimes are updated there may be new ways how to save tax while filing ITR and how to save tax in new tax regime. You must ensure you read the latest information about the deductions and exemptions so you can save on how much income tax you pay.

References:

https://www.godigit.com/income-tax/how-to-save-income-tax-in-india

https://www.bankbazaar.com/tax/save-money-on-tax.html

https://groww.in/p/tax/income-tax

https://incometaxindia.gov.in/Tutorials/2%20Tax%20Rates.pdf

https://www.iciciprulife.com/insurance-library/income-tax/how-to-save-income-tax.html

https://www.acko.com/tax/easy-ways-to-save-income-tax/

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