Ideally, it is an achievement when your income increases. However, this is one achievement we hesitate to boast about because the greater your income, the more is your income tax amount. It’s the reason why we try showing on paper that our actual income is less. That can be done in both legal and illegal ways.
In this article, we’ll learn about how to save income tax in India legally.
The government encourages you to cut down on your income tax in so many ways. After demonetization and the pandemic, India’s income tax slab rates have changed. Let’s look at them before we get to the tax-saving schemes.
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The Current Income Tax Slab Rates in India
Income tax rates have reduced by 5% for most slabs after 2020. Currently, the income tax slab rates in India (as per annual income) are as follows:
Up to ₹2.5 lakh: 0%
₹2.5 lakh – ₹5 lakh: 5%
₹5 lakh – ₹7.5 lakh: 10%
₹7.5 lakh – ₹10 lakh: 15%
₹10 lakh – ₹12.5 lakh: 20%
₹12.5 lakh – ₹15 lakh: 25%
₹15 lakh and above: 30%
How to save income tax in india through investments?
We all tend to save our income for the future. However, investing in the right direction also helps you save income tax. A lot of returns on investments are exempted from income tax. Investing in insurance, mutual funds, and a few other government schemes can provide you with some income tax exemptions or reductions.
See the list below:
Pay Health Insurance Premiums
Given how much a medical emergency can cost you, saving for it is of utmost importance. There’s no better way than getting a health insurance policy. Under Section 80D, you can claim tax reduction on the portion of the annual income you use to pay health insurance premiums. As such, paying health insurance premiums must be included in your list of how to save income tax in India.
Life Insurance Policy
You get income tax benefits for paying life insurance premiums and when you receive money on its maturity. Under Section 80C, if you purchased the policy after 1st April 2012, if the premium payments are less than 10% of the assured sum, you get benefits for up to ₹1.5 lakh. If you bought it before that, your premium amount can’t exceed 20%. Additionally, under Section 10(10D), claims received on insurance are exempt from income tax.
Investing in Mutual Funds & Shares
Any dividends you receive are exempted from income tax when you invest in equity mutual funds or shares. However, if you sell and receive more than ₹1 lakh, you might have to pay 10% income tax.
Contribute to National Pension System
Under Section 80C, if you contribute an extra amount of ₹50,000 to the national pension scheme, you will receive an exemption from income tax. Else, the contributions to NPS are limited to ₹1,50,000.
How to save tax on salary in india?
If you are employed, there will be a standard deduction of up to ₹40,000. Here are some other tips on how to save income tax in India on salary:
Leave Travel Allowance
Under Section 10(5), you can get tax exemptions on leave travel allowance, which covers the money spent on travel expenses for parents, children, spouses, and siblings – if dependent on your income.
Get a Deduction on Your Rent
Under Section 10(13), if HRA is part of your salary, you can get income tax benefits while living on rent. Else, if HRA is not a part of your salary, then you can get a deduction on your rent by subtracting it from 10% of your income, subject to a maximum deduction of ₹5,000 per month or ₹60,000 per year. It is thus a good point when pondering on how to save income tax in India
Receiving Gratuity
Gratuity is a benefit you receive if you’ve served a minimum of 5 years in a company. You can get income tax exemptions on this up to an amount of ₹20 lakh.
Food Coupons
If your employer provides you with food allowance or coupons, it is non-taxable up to ₹2,600.
Using a Car Leased by The Company
If you use a car on a lease, that amount gets deducted from your salary before paying taxes. However, this is subject to the business usage of the vehicle only. If 20% of the expenses are incurred for personal use, it will not fall under tax deductions.
Telephone & Internet Expenses
If you are provided with a telephone and internet allowance, it is 100% deductible from your salary, up to an amount of ₹1,500 per month.
Voluntary Retirement Scheme
Under this scheme, the employee retires before his due date and receives an amount exempted from tax up to ₹5 lakh. Did you know about this when thinking about how to save income tax in India?
Other Income Tax Saving Methods
Whether you’re a salaried employee or a businessman, there are some income tax benefits you can still avail yourself of.
These include the following:
Get a Deduction on The Interest on Home Loan
Under Section 80C, you get income tax benefits of up to ₹1.5 lakh on the principal amount and up to ₹2 lakh on the interest amount. If you let out the property on rent, your entire interest amount gets deducted from income tax.
Maintain One Savings Account
Having even one savings account is sufficient as the tax exemption is available on the interest you get for all your savings accounts combined. This benefit is availed up to an amount of ₹10,000. For a senior citizen, the limit goes straight up to ₹50,000 and should be definitely included when compiling a list of points on how to save income tax in India.
Contribute to Charity
Under Section 80G, if you make donations to charitable organizations, you can get a tax waiver of ₹2,000 against the receipts of your donation from the organization.
To Sum It Up
So, we’ve discovered plenty of ways on how to save income tax in India. Most of the above methods provide you with additional benefits and save your income tax. Investments and savings accounts provide you with extra income exempted from tax. Why not utilize them instead of saving all your money and making it stagnant?
