Taxes are an integral part of our economy. They are unavoidable for all individuals who fall in the tax bracket. However, the Income Tax Act offers various exemptions and benefits, which if used smartly can help you save a large portion of your income. However, what you need most for saving tax the right way is relevant knowledge.
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So, if you want to be a tax ninja so that you can save your hard-earned income from going out of your pockets, then know these important things-
Section 80C of the Income Tax Act offers tax exemption on many investments up to a limit of Rs. 1.5lacs. Such investments for tax exemption can help you achieve other financial goals along with saving tax money. Some investments for tax exemptions are as follows-
1. Tax Saving FDs: There is five -year tax-saving FDs which carry a fixed rate of interest which is taxable. So, as per Sec 80C of the Act, you can claim deduction up to Rs. 1.5 lakh in a given financial year.
2. Public Provident Fund: The PPF is a government established savings scheme with a 15-year tenure. The interest rate on PPF changes every quarter and offers tax benefit up to the limit set by Sec 80C.
3. ELSS Funds: These are a type of mutual funds that invest about 80% of your assets in equity. The returns that you earn on this fund will be subject to Long Term Capital Gains Tax (LTCG) at 10%, which will be over and above an exemption limit of Rs 1lacs.
4. Life Insurance Premiums: You can also claim a tax deduction of up Rs. 1.5lacs on premiums paid towards different types of insurance policies such as ULIPs, endowment policies and term insurance. However, the condition is that the insurance cover should be at least ten times that of the annual premium paid.
5. National Pension System: Deductions for this plan is available under Sec 80CCD up to a limit of Rs 1.5 lakhs. Also, this deduction is over and above the Rs 50,000 deduction that is available under Section 80CCD(1B).
Tax saving options from reputable insurers such as Max Life Insurance can help you earn comprehensive tax benefits under the provisions of the above- mentioned section. Moreover, other specified instruments under Section 80C include Employee Provident Fund, children’s tuition fees, National Savings Certificate (NSC), Senior Citizen Savings Scheme and Sukanya Samridhi Yojana. Thus, if you want to purchase investments for tax exemption, then you can consider one of these.
If you have taken a home loan or are planning to take one, then you can get tax benefits on both the interest payments as well as on principal amount.
If you have a home loan, the interest payable on it is tax-deductible under Section 24 of the Income Tax Act up to Rs 2 lakh per annum. If you give out the house on rent, there is no upper limit. However the total loss that can be claimed on the broader head of income from house property is capped at Rs 2 lakh. So, using interest on housing loan deduction for Ay 2019-20, you can save a considerable portion of your taxable income.
Moreover, repayment of the principal amount on a home loan is tax-deductible up to Rs 1.5lacs per annum.
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If you buy health insurance for your family or yourself, then you can get a deduction of up to Rs 25,000 on the premium paid towards the same under Sec 80D. If you have purchased the policy for parents who are senior citizens, then you will get a deduction of up to Rs 50,000. So, if you are paying premiums towards health insurance for both yourself and your senior citizen parents, then you can avail combined deduction up to Rs 75,000 per annum.
If you have a savings account, then you can tax benefits on the interest that you receive on such an account. The interest is tax-free up to a limit of Rs 10,000 per year under Sec 80TTA. This limit has been set at Rs 50,000 for senior citizens for FD as well as savings account interest under Sec 80TTB.
If you get HRA (house rent allowance), then you can also claim a tax deduction on the same. Although there is no upper limit for this deduction, there are some rules which cap the maximum HRA deduction. However, if you do not receive HRA but instead pay rent, then you can claim tax deduction under Sec 80GG up to a limit of Rs 60,000 per annum.