Penny saved is Penny earned, the top tax-saving tip that most people utilize. This opportunity to start planning for tax saving. Here are some options to avoid overpayment of taxes.
Under our tax system, an annual income of Rs. 2.5 lakhs is entirely exempted from tax. To claim deductions from the gross total income on account of various tax-saving investments, permitted expenditures, donations, etc.
Such deductions allow an assessee to considerably reduce the tax payable.
Standard Deduction For Salaried Person:
Salaried individuals can claim a standard deduction of up to Rs 50,000 on their income.
HRA(House Rent Allowance):
The deduction available is the least of the following amounts:
a. Actual HRA received;
b. 50% of [basic salary + DA] for those living in metro cities (40% for non-metros); or
c. Actual rent paid less 10% of basic salary + DA
The Chapter VI A of Income Tax Act contains the following sections:
Section 80C of the Income Tax Act, 1961, provides various deductions from the taxable income of an individual or Hindu Undivided Family (HUF). The deductions allowed under section 80C are as follows:
1. Provident Fund (PF): Contribution made to Employee Provident Fund (EPF) or Voluntary Provident Fund (VPF) is eligible for deduction under section 80C.
2. Public Provident Fund (PPF): Investment in PPF account is eligible for deduction under section 80C.
3. Equity Linked Saving Schemes (ELSS): Investment made in ELSS mutual funds is eligible for deduction under section 80C.
4. National Savings Certificate (NSC): Investment in NSC is eligible for deduction under section 80C.
5. Tax-saving Fixed Deposits (FD): Investment in tax-saving FDs with a maturity period of 5 years is eligible for deduction under section 80C.
6. Senior Citizens Savings Scheme (SCSS): Investment in SCSS is eligible for deduction under section 80C.
7. Unit-linked Insurance Plan (ULIP): Investment in ULIP is eligible for deduction under section 80C.
8. Life Insurance Premium: Payment of premium for life insurance policies is eligible for deduction under section 80C.
9. Sukanya Samriddhi Yojana (SSY): Investment in SSY account for the girl child is eligible for deduction under section 80C.
10. Tuition Fees: Payment of tuition fees for two children is eligible for deduction under section 80C.
The maximum deduction allowed under section 80C is Rs. 1.5 lakhs per year.
Home loan deduction :
There are two types of tax deductions available on home loans in India:
1. Deduction on Interest Paid: Under section 24(b) of the Income Tax Act, 1961, an individual can claim a deduction on the interest paid on a home loan. The maximum deduction allowed under this section is Rs. 2 lakhs per year, if the property is self-occupied. In case the property is not self-occupied, there is no upper limit on the amount of deduction that can be claimed. However, the actual interest paid on the home loan during the financial year can be claimed as a deduction subject to the maximum limits mentioned above.
2. Deduction on Principal Repayment: Under section 80C of the Income Tax Act, 1961, an individual can claim a deduction on the principal repayment made towards a home loan. The maximum deduction allowed under this section is Rs. 1.5 lakhs per year, which is within the overall limit of section 80C.
Section 80CCD:
This section provides an additional deduction of up to Rs. 50,000 for contributions made towards the NPS scheme. This deduction is available over and above the deduction available under section 80C.
Section 80D -Payment of Medical Insurance Premiums:
An individual can claim a deduction for payment of medical insurance premiums for self, spouse, dependent children, and parents. The maximum deduction allowed under this section is Rs. 25,000 per year. An additional deduction of up to Rs. 25,000 is available for payment of medical insurance premiums for parents (if they are less than 60 years old) or Rs. 50,000 (if they are 60 years or more). Therefore, a taxpayer can claim a maximum deduction of up to Rs. 75,000 (Rs. 25,000 + Rs. 50,000 ) under section 80D for the financial year.
Section 80E:
Deduction in respect of interest on loan taken for higher education without any upper limit.
Section 80EEB:
Deduction in respect of interest up to Rs 1.5 lakh on loan taken for purchase of electric vehicle.
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Section 80TTA:
Deductions in respect of interest on savings bank accounts up to Rs 10,000 in case of assesses other than Resident senior citizens.
Section 80G:
Donations to certain funds, charitable institutions, etc. Depending on the nature of the donee, the limit varies from 100 percent of total donation, 50 percent of total donation, or 50 percent of donation with a cap of 10 percent of gross income.