How Can I Save Tax on My Salary in India?
We have a tendency to invest in many products that improve our quality of life but can also put us in financial distress. The government offers substantial assistance in the form of income tax waivers on direct taxes payable on your whole earnings.
1. Take out a home loan and take advantage of Section 80C tax incentives.
Taking out a home loan has two advantages: it reduces your tax liability and gives you the satisfaction of owning your own home.
Many government-mandated housing programmes, such as PMAY (Pradhan Mantri Awas Yojana) and DDR (Delhi Development Authority) Housing Scheme, aim to make housing more accessible in India, whereas Section 80C and 24(b) lessen monetary obligation.
Section 80C allows you to deduct up to 1.5 lakh of your total annual income for repayment of the principal borrowed amount.
Section 24(b) allows for a tax exemption on the interest portion of a home loan up to $25,000 per year.
Furthermore, if you rent out your newly bought home, the entire interest component is not included in your annual income tax computations. Individuals who purchase a property for the purpose of building a home can also take advantage of section 24(b), as long as the construction is completed within five years.
If you are a first-time homeowner, section 80 EEA allows you to deduct an additional amount from your annual tax liability. If the stamp duty value of the property is less than 45 lakh, a total waiver of up to 1.5 lakh [in addition to Section 24(B)] can be claimed.
2. Purchase a medical insurance policy
Health insurance is becoming a need in India due to rising medical expenditures and worsening health quality due to a variety of issues. Individuals and their families benefit financially from such insurance coverage when their health is deteriorating.
The government provides tax rebates to encourage people to purchase such insurance policies, which allow them to receive high-quality care at prestigious medical institutes for no or little extra cost.
Section 80D allows individuals to claim a tax deduction for the part of their annual taxable income spent on premium payments. Depending on the age of the covered, different sums are exempted from such income tax computations. The tax rates are determined by the Income Tax Act of 1961, as changed from time to time.
3. Make financial commitments
Higher returns on investments in the capital market and government-mandated schemes can contribute to wealth building as well as tax benefits. You can learn how to invest in various instruments to lower income tax in India under Section 80C.
4. Put your money in government-sponsored programmes.
Numerous government-mandated plans offer large overall returns as well as tax exemptions. Individuals can claim up to 1.5 lakh in tax exemptions on total annual income spent on such investments under Section 80C of the Income Tax Act.
Investing in the following tools can result in tax exemptions:
- Senior Citizen Savings Scheme (SCSS)
- Sukanya Samriddhi Yojana (SSY)
- National Pension Scheme (NPS)
- Public Provident Fund (PPF)
- National Pension Scheme (NPS)
5. Take out a life insurance policy.
Tax exemptions are available on both premium payments and the amount disbursed at maturity for life insurance contracts.
Section 80C of the Income Tax Act provides for premium payments, while Section 10(10D) provides for the sum promised received at maturity or the insured’s untimely death, whichever comes first.
If the insurance is taken after 1st Aril 2012, however, tax benefits of up to 1.5 lakh spent on annual premiums can be claimed under Section 80C, as long as it is less than 10% of the entire value assured.
Providing the policy was purchased before April 1, 2012, Section 80C claims can be filed if the cumulative premium payments do not exceed 20% of the policy value.
The sum assured realised on such life insurance plans is similarly exempt from tax calculations under Section 10(10D), as long as it follows the requirements outlined above.
Purchase or renewal of life insurance coverage, as well as annuity payments on such plans made through yearly salary, are all eligible for Section 80CCC tax exemptions of up to 1.5 lakh.
6. If you live in rented premises, claim exemptions.
Section 10 of the Internal Revenue Code provides for tax exclusions under the House Rent Allowance (HRA) (13A). To be compensated for an HRA component, your pay breakdown must include one.
The entire tax exemption on paid rent, on the other hand, is computed as the minimum value of three components, as follows:
- HRA is received on an annual basis.
- If the person lives in a metropolis, they will receive 50% of their annual earnings (40 percent in case of non-metro cities).
- The total annual rent is equal to 10% of the base pay.
You can claim tax savings on yearly rental expenses under Section 80GG if your monthly income does not contain the HRA component.
7. Make a charitable contribution.
Cash donations to designated organisations are eligible for a tax exemption of up to $2,000 under Section 80G of the Internal Revenue Code. Wire and bank transfers, on the other hand, are tax-free in their entirety or in part. If you donate to a charity that supports scientific research or rural development, you may be eligible for tax deduction benefits under Section 80GGA.
8. Become a member of a political party.
Tax exemptions are available for all donations to political parties and contributions to electoral trusts made under Section 80GGC of the Act of 1961.
If the organization is registered under Section 29A of the Representation of People Act of 1951, the entire amount donated to your selected political party is free from any income tax computations.
Cash deposits are not permitted; such gifts must be provided through wired or bank transfers.
NOTE: To receive additional funds, make sure you submit the income tax return form and the Form 16 issued by your employer.
To Sum Up
All of the ways listed above will offer you a complete picture of how to save money on taxes in India. All of these factors will help you lower your overall taxable income for a given fiscal year, as well as educate you on the numerous government-mandated rules.