People always look out for ways to save on their taxes. Nobody wants to pass up opportunities to save money on taxes. However, different folks choose different approaches. Sometimes they adhere to the procedures they are familiar with, and as a result, they miss out on more effective tax-saving ways. As a result, this essay is for those who want to learn more about ways of saving money on taxes. If you are considering how to save income tax in India, keep reading to learn tax-saving tips for business owners and salaried staff.
What is Income Tax?
A share of your income you pay to the government is the income tax. Each year, the government collects this tax. The government uses this money for administrative purposes.
Easy Ways to Save Income Tax
Money from Life Insurance Policy
You can collect a life insurance policy’s proceeds at maturity or upon payment of the claim sum. If the premium does not exceed 20% of the insured amount, the amount you receive is tax-exempt. This rule applies to policies issued before April 1, 2012. For policies created after April 1, 2012, the percentage falls to 15%.
Scholarship for Education
According to Section 10 (16), this sum is tax-exempt. There are no restrictions because every rupee you receive under a private or public scholarship is tax-free.
Income from Agriculture
Any form of agricultural land income that satisfies the definition in section 10(1) is exempt from tax. Such income can come through land rent, land revenue, the price of agricultural products, and the amount through a farm building.
HUF and Extra Income
If you have a secondary income along with your regular salary, you can save tax on this extra income. For instance, you can call the money you earn via freelancing your secondary income. For the secondary income, you must register a different HUF account. After that, you can invest that sum under Section 80C to receive tax benefits.
Provisions Under Section 80C
The Indian government provides an investment allowance of up to Rs. 1,50,000 to promote savings under section 80C. As a result, by investing in tax-saving options under 80C, you can save money on income tax and invest for the future. Below is a list of the most well-liked investing strategies for section 80C tax savings.
- National Pension Scheme
- Public Provident Fund
- Equity Linked Savings Scheme
- Home loan’s principal amount
- Children’s tuition fees
- National Savings Certificate
- Premium Paid for Life Insurance policy
- Sukanya Samariddhi account
- Fixed deposit for five years
Amount from Provident Funds
The provident fund’s interest earnings are not taxable. You should remain patient for five years before taking money out of your Provident Fund.
Health Insurance Premium
Health insurance tax deductions come under Section 80D. To a extent, the cost of health insurance premiums is not tax deductible. In addition, on an annual basis, this sum fluctuates. You can save more tax by paying the premium for senior citizens’ health insurance.
Expenses Incurred to treat Disabled Dependent
These deductions fall under Section 80DD. For those with disabilities ranging from 40 to 80%, fixed deductions of INR 75,000 are available. Deductions of INR 125,000 are available for disabilities above 80%. Such costs should be for rehabilitation, treating a disease, or education. To be eligible for this deduction, you must present a certificate of disability.
Expenses to Treat Specific Diseases
Section 80DDB contains this deduction. Tax benefits are available for expenses you incur to treat specific illnesses like dementia, cancer, and AIDS. Tax deductions of up to INR 40,000 are available for such diseases. If you incur these expenses for a dependent senior citizen, the sum rises to INR 1 lakh.
Money Spent on Donation to Charity
Donating to recognized charitable organizations can help you reduce the amount of money you pay in taxes. Section 80G governs this deduction. You must receive a valid certificate from that organization to receive the benefit.
Additional Deduction of INR 50,000 for Investment in NPS
Contribution to the NPS comes under Section 80C, wherein you claim a tax deduction of INR 1,50,000. But, you can claim an additional deduction of INR 50,000 for your investments in the National Pension System (NPS).
Amount You Receive Through Inheritance
The sum you receive as an inheritance under a Will is not subject to taxation in India. So, as a result, you will not attract tax in India on this wealth.
Tax on Earnings Through P2P Lending
In P2P lending, investors earn income in the form of interest on the amount they lend. The Fractional Matchmaking Peer-to-Peer Plan from LenDenClub offers up to 10–12%* annual returns on your investment. Similar to the interest earned on any other instrument, such as a fixed deposit, the interest income in P2P lending is also taxable. Lenders’ interest income from peer-to-peer lending comes under “income from other sources” and becomes a part of their taxable income.