10 Quick Tax Saving Tips For You

As Indian citizens earning an income in India, we are required by law to pay income tax according to the slab rates our income falls under. But you can reduce your income tax outgo by incorporating some perfectly legal tips and provisions made by the government. Before we delve into the ways to reduce income tax, let us first get a basic idea of what income tax actually is.

The Indian government requires you to pay a portion of your annual income to the government as income tax . The income tax collected is a way for the government to generate funds and use it for infrastructural, economic, and administrative development. The amount of income tax you pay depends on the income slab you fall under.

There are plenty of legal ways that you can save on income tax. When we save our hard-earned income, we must look at every opportunity to minimize tax outgo using legal means and government provisions and benefits. Whether it is life insurance , investments, PPF , home loan etc, we find ways and opportunities to save up on income tax. Whatever methods you may be using to save taxes, you can be sure that there are ample more ways to do so. Given below, we’ve listed out ten different ways to save income tax.

By Claiming Expenses

Your income tax liability does not apply to your gross income but on your net income. Thus, you can deduct some expenses and calculate your reduced net income. If your expenses are on the higher side, your tax liability automatically goes down since you can claim those expenses. Expenses can be claimed under House Rent Allowance, Leave Travel Allowance, Mobile expenses, health insurance premiums etc.

By Investing in Tax-Saving Instruments

The second way to save income tax in India is to invest in various tax-saving instruments like PPF, ELSS and other such options under Section 80C of the Income Tax Act. This provision attracts tax payers to invest in the Indian economy since they can reap tax benefits. Under section 80C, tax deductions of upto Rs. 1.5 lakh can be claimed if invested in tax saving instruments.Let us further look at specific ways you can save income tax in India

1. Tax Deduction In Case of Availing A Home Loan

If you plan on getting a home loan to purchase a house, then, you can claim tax deductions under Section 80C for both the interest as well as the principal amount. Do note that there are some terms and conditions for deduction of claims for home loans. The maximum deduction permitted for the principal is Rs. 1.5 lakh per annum while that for the interest component is Rs 2 lakh per annum.

2. Income Through Savings Account Interest

Whatever interest you earn from your savings account annually is exempt from income tax up to a limit of Rs. 10,000 per year. The limit of Rs. 10,000 is cumulative for all savings accounts that one holds. The limit is Rs. 50,000 per annum in case of senior citizens. Thus, parking your surplus funds in a savings account and earning interest over it is a good way to minimize your tax outgo.

3. Income Through NRE Account Interest

An NRE or Non Resident External account is used by NRIs to deposit income earned abroad. The same income also earns interest in the account. This interest earned in the NRE account is completely tax free and hence need not be considered in taxable income. Do note that an NRO account that holds income earned in India for NRIs is fully taxable according to the appropriate tax slab.

4. Money Received from Life Insurance Policy

If a Life Insurance Policy pays out the maturity benefit or the death benefit to the beneficiary, then that amount is exempt from income tax if the premium doesn’t exceed 20% of the insured sum for policies purchased before 1st April 2012. For policies purchased after that date, the premium limit is 15% of the sum assured to be eligible for tax exemption.

5. Scholarship for Education

If an amount is granted as scholarship for education purposes, then the amount is tax free under Section 10(16). There is no limit to the deduction one can claim in this case for both private as well as public scholarship.

6. Amount Received From Sold Shares or Sold Equity Mutual Funds

For equity shares or mutual funds sold, no income tax is applicable if the Long Term Capital Gain is under Rs. 1 lakh. If the LTCG exceeds this amount, then a 10% income tax is applicable under Long Term Capital Gains Tax.

7. Amount Received as Dividends on Shares or Equity Mutual Funds

If you’ve opted for dividend income from shares or equity mutual funds, then that dividend income is tax-free.

8. Wedding Gift

Weddings are usually a huge affair in India and there are always exchanges of valuable gifts from families. Under Section 56(2), wedding gifts received by the bride and the groom, whether they’re in the form of cash, cheque, or other gifts are fully tax-free. These wedding gifts can either be from relatives of the bride or the groom or friends.

9. Income from Agriculture

Any income generated from agricultural land defined as per Section 10(1) is exempt from income tax. This income can be in the form of rent from the land, revenue from the land, income generated through agricultural products or through farm building.

10. HUF and Extra Income

If you earn a secondary income apart from your primary source of income, then you can save some tax on the same. By investing the second income in various tax saving instruments under Section 80C, you can decrease your tax liability and save up on income tax.Ready to make the most of your money? Start your tax planning journey now!

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.