Five Lesser-Known Approaches to Trim Your Tax Liability

Tax savings

Five Lesser-Known Approaches to Trim Your Tax Liability

Tax savings

Income tax documentation from employees is requested by firms in January. The many tax saving strategies available to taxpayers under the previous tax regime, as those outlined in Section 80 C of the Income Tax Act, are well known to them and can result in significant tax savings. A large number of them, though, have not invested.

They come to see how crucial it was when their employers request investment proof from them.

1. Give your parents their rent money

You can get HRA by paying your parents’ rent if you live with them and aren’t eligible to receive HRA.

 You can claim a tax deduction on HRA by proving that your parents are tenants under Section 10(13A) of the Income Tax Act.

You cannot, however, claim HRA if you are receiving any other housing tax benefit.

Tax savings

2. Give interest to parents

You can borrow money from your parents to pay for household expenditures, but you will have to pay interest if they are not taxed or are in a low tax bracket.

But remember to obtain an attested document of interest payment to qualify for tax exemption.

You won’t be eligible for a tax exemption if you can’t produce this documentation.

This tax exemption is available to you under Income Tax Section 24B.

The maximum discount available under this is Rs 2 lakh.

3. Exemption from taxes on pre-nursery fees

You can still receive a tax exemption on your child’s tuition even if he is enrolled in playgroup, pre-nursery, or nursery despite his small size.

Despite being introduced in 2015, this tax advantage did not gain the same level of popularity as the school tuition fee deduction.

This exemption is available under Section 80C and applies to a maximum of two children’s expenses.

4. Purchase health insurance for your spouse and kids

You may take care of your parents’ health and save money on taxes at the same time.

You are free from paying taxes on the premium amount if you enroll your parents in health insurance.

You will receive a tax exemption on the first Rs 25,000 of premiums paid for your parents’ health insurance if they are under 65.

Your parents will receive a tax exemption of up to Rs 50,000 if they are over 65.

Read More:Ten strategies to lower your income tax

5. Tax exemption on parents' medical costs

Additionally, you are eligible for a tax exemption on your parents’ medical costs.

But, in order to do this, your parents must be at least 60 years old.

They frequently have to pay high medical costs at this age, which are exempt from taxes under Section 80D.

You are eligible for a maximum tax exemption of Rs 50,000 under this.

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How to get NPS tax deductions under old and new income tax regimes

NPS

How to get NPS tax deductions under old and new income tax regimes

NPS

Tax under the New Tax Regime

On February 1, 2023, the Center published its most recent complete budget, which included a few significant adjustments to the tax code. The principal one was substituting the Old Tax Regime with the New Tax Regime as the default tax system for taxpayers. In an effort to draw in more taxpayers, the Finance Ministry added extra tax benefits to the New tax system. For the fiscal year 2023–2024, these further tax benefits—which were mentioned in the Budget 2023—went into force on April 1, 2023.

Several tax exclusions and deductions were available under various Income Tax Act sections during the Old Tax Regime. These included deductions for Section 24 home loan interest, education or hostel allowance for children, professional tax, leave travel allowance (LTA), basic deduction, and house rent allowance (HRA).

In contrast, taxpayers are not allowed to claim a number of exemptions and deductions under the New Tax Regime, including HRA, LTA, 80C, 80D, and others. It should be emphasized that under the new tax regime, salaried individuals are eligible to deduct two things: the Standard Deduction and the employer’s National Pension System (NPS) contribution deduction under section 80CCD (2).

Under both the old and new income tax systems, the following is how one can claim tax deductions for NPS:

NPS

New Tax Regime

Under the New Tax Regime, the NPS-related deduction provided by Section 80CCD (2) of the Income-tax Act, 1961, was permitted. The employer’s contribution to the employee’s NPS account is deducted under this scheme. Only those with salaries are covered by Section 80CCD(2); self-employed people are not. One may take use of the deductions under this provision in addition to those under provision 80CCD (1).

A salaried person may deduct the following under Section 80CCD(2):

Employer in the Central or State Government: Up to 14% of their pay (base + DA)

Any additional employer: A maximum deduction of 10% of base pay plus bonus (DA)

As per Section 80CCD(2) of the Income Tax Act, individuals are eligible to receive employer contributions to their National Pension System (NPS) account under the new tax regulations. This deduction is only allowed for the employee’s portion of the employer’s NPS payments, up to a maximum of 10% of the employee’s base pay (DA + Basic).

Section 80CCD (2) of the Income Tax Act grants Subscribers under the Corporate Sector an Additional Tax Benefit. According to the NPS website, an employer’s payment to the employee’s NPS up to 10% of basic and DA salary is deducted from taxable income up to a maximum of 7.5 Lakh.

Investments made towards a Tier II NPS Account are not tax-benefited.

Old Tax Regime

Sections 80CCD (1), 80CCD (1B), and 80CCD (2) of the Income-tax Act, 1961 allow taxpayers opting for the Old Tax Regime to claim tax deductions against NPS.

Contributions to the NPS may be deducted from a taxpayer’s gross total income under the Old Tax Regime, Section 80CCD (1) of the Income-tax Act, 1961. Under Section 80CCD, taxpayers who are self-employed or who are salaried may claim the deduction (1). For salaried individuals, the maximum deduction under this provision is 10% of your salary (Basic + DA); for self-employed individuals, it is 20% of your gross total income. Throughout a fiscal year, the maximum is set at Rs 1.5 lakh.

It is important to remember that the total amount of deductions allowed under sections 80C, 80CCC, and 80CCD cannot exceed Rs 1.5 lakh.

In addition to the maximum deduction of Rs 1.5 lakh allowed for taxpayers under Section 80CCD (1), Section 80CCD (1B) allows an extra deduction of up to Rs 50,000 for payments made to the National Pension System (NPS).

Read More: Ten strategies to lower your income tax

Particularly, the employer’s payment to an employee’s NPS account is covered by Section 80CCD (2). As such, this benefit is only available to taxpayers who are salaried. Private sector workers may occasionally be able to change their pay plan to incorporate employer contributions to NPS, which are subtracted from their total cost-to-company (CTC) package.

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Ten strategies to lower your income tax

tax deduction

Ten strategies to lower your income tax

tax deduction

There are just a few months remaining in the Financial Year 2023–24 to save income tax. Offices are now requesting investment proofs from their staff members. There are numerous investment plans that can significantly reduce your income tax liability.

If you have invested to reduce your taxes, that’s great, but if not, you still have time.

There are several tax deductions that allow you to claim tax exemptions on investments, profits, and other sorts of payments, which can help you save money on taxes for the fiscal year.

1. Investment in LIC, PPF, and NSC

Section 80C is the simplest and greatest way to save income taxes. This area offers a wide variety of tax exemptions.

Under Section 80C, the principle of your home loan, children’s tuition expenses, Provident Fund (EPF), PPF, and National Savings Certificate (NSC) are all tax-exempt.

The amount that is excluded is Rs 1.5 lakh.

If you have bought an annuity plan (pension plan) from LIC or another insurance firm, you are eligible for tax exemption under Section 80CCC.

If you have contributed money to the Central Government’s pension plan, you may be eligible to receive it under Section 80 CCD (1). When combined, the tax exemption cannot be more than Rs 1.5 lakh.

tax deduction

2. Make an NPS investment

One can receive an extra exemption of Rs 50,000 under Section 80CCD (1B) if they invest in the Central Government’s New Pension System (NPS).

This exemption is not the same as the Rs 1.5 lakh tax relief that section 80C grants.

In the Central Government Pension Plan, employer contributions are also deductible under Section 80CCD2.

For this, there are two prerequisites.

First, find out if the employer is a state government, a Public Sector Unit (PSU), or another entity.

Ten percent of the pay is the maximum deduction allowed in this case.

The deduction cap is 14% if the Central Government is the employer.

3. Interest on home loans will reduce taxes

For loans for the combined education of two children, there is a tax exemption.

Two children’s loans of Rs 25 lakh each, each at a 10% interest rate, would require an annual interest payment of Rs 5 lakh on a total of Rs 50 lakh.

This entire sum will be excluded from taxes.

Interest on house loans is also excluded from taxes.

You may claim this exemption under Income Tax Section 24(b).

Under this, interest up to Rs 2 lakh is exempt from taxation.

This exemption from taxes will only be granted if the property is “self-occupied.”

4. Use home loan principle to reduce taxes

Section 80C allows you to receive a tax exemption on the principal of your home loan.

It is limited to Rs 1.5 lakh, though.

Thus, keep in mind that the maximum deduction you can claim in section 80C (all plans of the first point) is Rs 1.50 lakh.

5. Interest on college loans is free from taxes

The tax deduction for student loan interest is available indefinitely.

The year that the loan repayment begins is also the year that the tax claim begins.

The following seven years are covered by its benefits.

For a total of eight years, you are eligible for tax exemption.

 

6. Premium for health insurance

If you have health insurance, Section 80D allows you to claim premiums.

You are eligible to receive a premium reimbursement of up to Rs 25,000 if you have purchased health insurance for your parents, spouse, kids, and yourself.

In this instance, the parents’ ages ought to be under sixty.

The maximum amount of tax exemption that applies if your parents are senior citizens is Rs 50,000.

It also includes a Rs 5,000 health checkup.

The deduction, however, is limited to the cost of health insurance.

7. Costs of caring for dependents with disabilities

Claims are allowed for costs related to the care or maintenance of dependents with disabilities.

A maximum of Rs 75,000 can be claimed annually.

A tax deduction of Rs 1.25 lakh on medical expenses can be claimed if the dependant individual has a handicap of 80% or more.

8. Medical treatment payments are free from taxes

Income tax deductions of up to Rs 40,000 are available for the treatment of certain illnesses that oneself or any dependents may have under Section 80DD 1B.

The upper limit is Rs 1 lakh if the individual is a senior citizen.

9. Loan-based rebate for electric cars

If you have taken out a loan to purchase an electric car, you are eligible for an interest payment tax exemption of up to Rs 1.5 lakh under Section 80EEB of the Income Tax.

Read More: Various Correction Types for TDS Returns in India

10. Rent for the house

You may use Section 80GG to claim house rent payments if HRA is not included in your pay. You are not eligible to claim housing rent under 80GG if your employer offers HRA.

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