There are different ways through which you can save tax. Some of them are:
1. By buying life insurance:
The premiums paid on life insurance policies are eligible for deduction from taxable income under Section 80C resulting in tax save. Some of the other tax-savings options which fall under this section are PPF, NSC (National Savings Certificates), Sukanya Samriddhi, NPS (National Pension System) and kid’s tuition fees. However, the maximum amount which can be claimed as deduction from taxable income under this section is `1.5 lakh.
2. By insuring your and yours loved one’s health:
Under Section 80D, premiums paid in any mode other than cash towards insuring the health of self, spouse, and dependent children are eligible for deduction for up to Rs 25,000 from your taxable income. Paying the premium on health policies of senior citizen parents makes you eligible for an additional deduction of Rs 30,000 from your taxable income, thereby helping you save more tax. This limit includes the expenses of up to `5000 incurred on preventive health checkups.
3. By submitting rent receipts:
If you are staying in a rented accommodation and receive HRA from your employer, you can claim deduction under Section 10(13A). The least of the following three will be allowed as exemption from taxable income before calculating tax on total income
- Actual HRA received from the employer
- The actual rent paid in excess of 10% of salary*
- 50% of the salary if you stay in a metro city and 40% of the salary if you stay in a non-metro city
* Salary= Basic Salary+ Dearness allowance as per employment terms
However, under Section 80GG, if you do not receive house rent allowance (HRA) from your employer or do not own a residential house, you can get deduction of house rent expenses from your taxable income. The least of the following three will be allowed as deduction from taxable income:
- `60,000 per annum(`5000 per month)
- Rent paid minus 10% of total income.
- 25% of total income for the year.
4. By making a charitable donation:
A donation made towards certain relief funds and charitable organizations is eligible for deductions under Section 80G. However, any donation made in items such as food material, medicines, etc.; are not eligible for deduction.
5. By financing higher education:
Under Section 80E, the interest paid on a loan taken for higher education qualifies for a deduction from taxable income. The deduction is offered for a maximum of 8 years or till the time the interest is paid, whichever is earlier
6. By buying a house:
Under Section 24, you can get deduction from taxable house property income, of Interest paid on Home loan upto Rs 2 lakhs. Also, first time home buyers can claim an additional deduction from taxable income of 50,000 on home loan interest under section 80EE, provided the following criterion s are met:
- The housing loan should be sanctioned in the FY 2016-17
- The loan should not be more than Rs 35 lakh
- The residential house value should be less than Rs 50 lakh
- The home buyer should not have any other residential property registered in his name.
Life insurance as a financial saving tool
Life insurance is an important part of any individual’s financial portfolio. It offers protection to you and your family against critical ailment, disability, and death. There are various types of life insurance plans like endowment plans, unit-linked plans, term insurance, etc. From a tax perspective, all these products are treated equally before The Income Tax law. So regardless of the type of the policy chosen, you can enjoy the following benefits:
- Under Section 80C, save tax on the premium paid on insurance policies. Under Section 10(10D), maturity/death benefits are tax-free subject to the conditions mentioned therein.
- Under Section 80D, avail tax benefit# on premium paid towards critical illness benefit offered by term insurance plans
With the advent of technology, you can buy various tax-saving financial products online to save both your time and efforts. However, do not invest in any financial or insurance product just to save tax. It is fine to pay tax when you can’t invest in a right investment product but never invest just to save taxes!
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# Tax benefits under the policy are subject to conditions under the provisions of the Income Tax Act, 1961. Applicable taxes will be charged extra, as per applicable rates. The tax laws are subject to amendments from time to time.