7 ways in which taxpayers can reduce their tax liability

Nobody enjoys paying taxes in this world. There is no way to avoid paying taxes if you have taxable income. However, effective planning from the start of the fiscal year might help you lower your tax liability.

Income tax rules in India have exempted certain expenses and investments from taxation, or if you make certain investments or incur certain expenses, you may be entitled to tax deductions and exemptions. As a result, such investments and expenses can help you minimise your tax liability.

Income tax rules in India have exempted certain expenses and investments from taxation, or if you make certain investments or incur certain expenses, you may be entitled to tax deductions and exemptions.

Here are seven strategies for lowering your tax bill:

1. Premium payments for life insurance, pension plans, and provident funds

Individuals can deduct up to Rs 1.50 lakh in payments for life insurance premiums, provident fund, PPF, investment in ELSS schemes, tuition fees paid for up to two children, National Savings Certificate, home loan principal repayment, and so on under Section 80C of the Income Tax Act 1961.

Section 80CCC allows you to deduct premiums paid for annuity and pension plans offered by insurance firms. Similarly, deductions can be claimed on investments made in the Central Government’s pension system under Section 80 CCD (1).

However, the total deduction for all three components combined cannot exceed Rs 1.50 lakh.

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2. Contribution to the National Pension System (NPS)

An extra deduction of up to Rs 50,000 can be claimed on NPS contributions made by employees under Section 80 CCD (1B). This is in addition to the investment made according to Section 80CCD (1).

A deduction for an employer’s NPS contribution can be claimed under Section 80 CCD2. However, the size of the tax benefit will be determined by the type of employer.

-The deduction limit is 10% of the basic wage plus dearness allowance if the employer is a PSU, state government, or any other private sector enterprise (DA).

If your employer is the federal government, you can deduct up to 14% of your basic salary plus DA.

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3. Rental property income

An individual can claim a tax deduction of up to Rs 2 lakh on interest payments on a house loan or home improvement loan on a self-occupied property under Section 24(b). However, payments made toward the principal of a house loan can be claimed under Section 80C up to a maximum of Rs 1.50 lakh.

You cannot, however, claim this tax benefit if you have chosen the new tax regime.

4. Premium payment for health insurance

A deduction can be claimed under Section 80 D for premiums paid for health insurance for self and dependent family members, as well as for preventative health check-ups. However, there are certain limitations:

Section 80D allows a deduction of Rs 25,000 for self/spouse, dependent children, or patents. This deduction might be up to Rs 50,000 if the claimant or any family members are senior people. Only a Rs 5000 deduction is allowed under Section 80D for preventive health examinations.

Medical expenses incurred by a senior citizen can also be deducted up to Rs 50,000 under Section 80D.

5. Expenses for the care and treatment of a dependent who is impaired

Expenses for the maintenance or medical care of a disabled dependent can be deducted up to Rs 75,000. However, if you have a severe disability (80% or more), you may be eligible for a reduction of up to Rs 1.25 lakh.

6. Medical treatment reimbursement

A deduction of up to Rs 40,000 can be claimed under Section 80 DD (1B) for medical expenditures incurred by self and dependent family members for specified diseases. If one of the family members is a senior citizen, the deduction limit would be increased to Rs 1 lakh.

7. The amount of interest paid on a student loan

An individual can deduct interest paid on an education loan taken for the higher education of a dependent child or spouse under Section 80E. It’s worth noting that there’s no maximum limit to this deduction.