Paying tax is an important responsibility of an individual towards a nation, however, at the same time, with financial planning you can save your taxes while fulfilling your responsibility by using the tax saving schemes given by the government.
Tax planning is an integral part of a financial plan that helps in the reduction of tax liability and increment of contributions towards retirement schemes.
Let us deep dive into the various deductions available for an Individual under Income tax act :
Income tax department with a view to encourage savings and investments amongst the taxpayers have provided various deductions from the taxable income. Investments in following schemes are eligible for deduction under this section :
1. Payment of annual premium of a Life Insurance policy (LIC). The deduction is eligible only if the premium is less than 10% of the sum assured.
2. Payment of Children’s Tution fees for two chlidrens.
3. Repayment of the principal portion of loan taken to buy or construct a residential house property.
4. Investment in Tax Saving FDs.
6. Investment in Sukanya Samridhi Yojna.
7. Investment in National Pension system (NPS).
It is important to note that overall limit including the all the investments/payments for claiming deduction under this section is Rs 1.5 lakh except an additional deduction of Rs 50,000 allowed for contribution to Atal Pension Yojna.
A deduction is allowed to an individual for interest on loans taken for pursuing higher education. This loan may have been taken for the taxpayer, spouse or children or for a student for whom the taxpayer is a legal guardian.
This deduction is available for a maximum of 8 years (beginning the year in which the interest starts getting repaid) or till the entire interest is repaid, whichever is earlier.
The various donations specified in u/s 80G are eligible for deduction up to either 100% or 50% with or without restriction. Donations to funds like Prime Minister’s National Relief Fund, National Defense Fund and National Foundation for Communal Harmony also allow 100% deduction Every taxpayer must smartly optimize their tax liability through tax-saving investments that offer financial growth besides saving tax outgo.
Individuals may claim a deduction of maximum Rs 10,000 against interest income from your savings account with a bank, co-operative society, or post office.
This deduction is not available on interest income from fixed deposits, recurring deposits, or interest income from corporate bonds.
Deduction with respect to interest income from deposits held by senior citizens will be allowed upto Rs 50000.
Please note that the above deductions are only some of the common deductions available for an individual. There are also many other deductions available under Income Tax Act which may be availed with proper planning.
CA Nitesh Rawat | nitesh.chartered @gmail.com | 8209904900