Everybody wants to reduce Income Tax liability but most of them do not know how to reduce Income Tax liability legally. Some know partially. As a result of which, they pay more tax which they can save. My efforts in this article are to throw a light on the issue to help you in reducing Income Tax burden.

However, before going to our main discussion, I would like to highlight some recent changes in Income Tax Act which you should know for proper tax planning.

Recent Changes in Income Tax which has come in to force from 1.4.2021

In Finance Act 2020 and 2021 there are major changes which affect most of the Income Tax payers. Until and unless you know these changes, you will have to face a lot of problems. In this article I try to explain them and suggest you how to deal with these.

1. Pre-filled ITR Forms : In Budget 2021, Prefilled ITR Form has been introduced to facilitate the tax payers while filing Income Tax Return. Now, what information will be prefilled in the Return? The answer is simple. In a prefilled Return, information regarding Capital Gains from listed securities, Dividend Income, Interest from Banks/Post Offices etc.

2. Tax on Interest on PF: As per Budget 2021, Interest income on Provided Fund is fully taxable, if Interest is more than Rs. 2.5 Lakh. So

3. Penalty for Non-Linking of Aadhar & PAN : The last date of linking PAN Card with Aadhar Card is 31.3.21. If you failed to do so, you will be fined Rs, 10000 as per Sec 272B of Income Tax act.

4. High TDS/TCS Rate for Income Tax Return ( ITR) Non-filers: A new section 206AB has been included in Income Tax Act for Non-filer of Return providing higher rate of TDS ( Tax Deducted at Source) The proposed Rate on Non-Filer is higher of the following:

  • 5%
  • Twice the rate specified in the relevant provision of the Act
  • Twice the rate or rates in force.

5. Submission of bills under LTC Cash Voucher Scheme: GST number and GST amount is must in Invoice for claiming tax benefit under LTC Cash Voucher Scheme.

How to reduce Tax Liability or how to save Tax

A. For Salaried and Retired Employee ad other Individual & HUF

The most suffered tax payers are salaried persons. They don’t have much scope for reducing their tax liability where as a businessman can save tax through many unscrupulous ways.

However, still there are various ways to save tax which a salaried person can opt which are detailed below:

a) Savings under section 80 C & 80CCC ( Maximum investment limit Rs. 1.50 Lakh)

A salaried person can invest in the following schemes. The investment limit in this section is Rs 1.50 Lakh. It means

i) Compulsory contribution towards Provident Fund

ii) Voluntary Contribution towards Provident Fund

iii) Contribution in Public Provident Fund account

iv) Life Insurance Premium

v) Equity linked saving scheme,

vi) Principal amount payment towards home loan

vii) Stamp duty and registration charges for purchase of property

viii) Sukanya smriddhi yojana (SSY)

ix) National saving certificate (NSC)

x) Senior citizen savings scheme (SCSS)

xi) Unit Linked Insurance Plan (ULIP)

xii) Tax Saving FD for 5 years

xiii) Infrastructure bonds

xiv) Payment towards annuity pension plans

xv) Tax savings Mutual Fund (ELSS)

b) Savings under Section 80 CCD( 1 )

Employee’s contribution towards NPS under section 80CCD (1)

However, maximum deduction allowed is least of the following

  •  10% of salary (in case taxpayer is employee)
  •  20& of gross total income (in case of self-employed)
  •  Rs 1.5 Lakh (limit allowed u/s 80C)

c) Savings under Section 80CCD( 1 b)

Additional deduction of Rs. 50000 towards contribution against NPS. Contributions to Atal Pension Yojana is also eligible for deduction.

d) Savings under Section 80CCD( 2 )

Employer’s contribution towards NPS under section 80CCD (2) is allowed for deduction up to 10% of basic salary plus dearness allowance under this section.

e) Savings under Section 80D

Health Insurance Premium is allowable deduction under section 80D up to Rs. 25000 for self, spouse and dependent children. Additional Rs. 25000 may be available for deduction if premium is paid for parents under 60 years.

f) Savings under section 24

Interest on House Building Loan is deductible under Income from House Building up to Rs. 2 Lakh.

g) Deduction for Interest earned from Bank Accounts and Deposits under Section 80TTB

Senior citizen can avail a deduction under section 80TTB up to Rs. 50000 for Interest earned against Bank Deposits.

h) Deduction under Section 80G for Donation given to Charitable organisations.

One can save Tax by giving Donation to eligible Charitable organisation under section 80G. But before giving Donation, it must be ensured that the organisation is registered in Income Tax Department and is eligible for 80G Deduction.

i) Section 80DD – Disabled dependent deduction. (Spouse/Children/Parents)

If any Spouse/Children/Parents is disabled partially or totally, deduction can be claimed in this section.

j) Section 80U- Deduction for Disabled Tax Payer

If any Taxpayer himself is disabled partially or totally, deduction can be claimed in this section.

k) Deduction for Long Term Capital Gain

Long Term Capital Gain can be saved up to Rs 1 Lakh for Equity based Mutual Fund .

Long Term Capital Gain from sell of Property can also be saved if certain conditions are fulfilled viz. Investment in New Property, Purchase of Capital Gain Tax Bond etc.

B. For Businessman

In addition to above savings or deduction, a businessman can also save Tax in the following ways:

a) Hire your own family members and relatives and paid salary up to Rs. 250000 which is not taxable in his/her hand and you get allowable expenses.

b) Booking of Traveling and Accommodation in Firm’s Name as it is an allowable expenditure.

c) Invest more in Digital Marketing. It will increase your sale and also you can claim it as a deductible expense.

d) Business Utility.- Claim your vehicle running expenses, driver’s salary, mobile and telephone bills and other utility payments as allowable expenses.

e) Correctly deduct TDS while making payment to your supplier otherwise it will not be considered as allowable expenses.

f) Donation to Income Tax approved organisation

g) Housing Loan

h) Depreciation

i) Digital Transaction over Rs. 20000 is totally stopped. As these transactions will not be eligible for allowable expenses.

Author Bio

Qualification: CMA
Company: Alokesh Dutta & Co
Location: Bilaspur, Chhattisgarh, India
Member Since: 18 Jan 2020 | Total Posts: 2
CMA Alokesh Dutta, aged 62 years is a Bachelors in Science from Kolkata University, and is a Fellow Member of The Institute of Cost Accountants of India. He is also a registered authorised GST Practitioner under CGST Act, 2017. He is also a Senior working Partner of R M Bansal & Co, Cost Acco View Full Profile

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December 2022