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Eight ways to save Income Tax

VISHAL BANSAL 
on 10 November 2018

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Saving Income tax by investing money in smart way is the need of every tax payer. Here are the top 8 ways to save income tax.

1. Plan for Tax savings on amount of Rs. 1,50,000:

First you have to calculate the amount of tax-saving expenses like insurance premium, children's tuition fees, EPF Contribution, home loan repayment, etc. that has to be made during the year. Deduct the above amount from Rs.1,50,000 to know how much balance amount is to be invested. This remaining amount can be invested in any of the following schemes to avail deductions under section 80C/80CCC/80CCD(1):

  1. Tax Saving Fixed deposits with banks (5 Years)
  2. Public Provident Fund Account (Interest on PPF is exempt from tax)
  3. National Saving Certificates
  4. Unit Linked Insurance Plan
  5. Equity Linked Saving Schemes
  6. Sukanya Samridhi Yojna Account (SSYA)
  7. Life Insurance premium
  8. Repayment of Housing Loan

In addition to this, Deduction under section 80CCD (1B) is allowed up to Rs. 50,000. Investment in National Pension Scheme (NPS) is the best and only solution available to save tax.

2. Plan your Mediclaim Policy:

Medical insurance not only provides you support at the time of need, but is also a good way to save tax on amount of premium paid.

Maximum amount of deduction allowed is as follows: -


Particulars Self, spouse and dependent children (A) Parents (dependent or not) (B) Total amount allowed (A+B)
If Self, Spouse, Children and his Parents are below the age of 60 years 25,000 25,000 50,000
If Self, Spouse & Children are below the age of 60 years but his parents are senior citizen 25,000 30,000 55,000
If an assesse self, his spouse and parents are senior citizens 30,000 30,000 60,000

* Make sure that Premium is not to be paid in cash. It can be in form of cheque/ DD only. Deduction amount for senior citizens has been increased from Rs. 30,000 to Rs. 50,000 from the financial year 2018-19. (I will explain mediclaim policies and their benefits in my future blog post soon.)

3. Tax saving on Repayment of Interest on Educational Loan:

If you are interested in higher education (for self, spouse & children), then you can take loan and claim tax benefits on repayment of interest on Education loan.

  1. There is no restriction on limit of deduction amount.
  2. Deduction is allowed for max 8 years or until the full amount of interest is repaid, whichever is earlier.
  3. Deduction is available to an Individual not to HUF.
  4. Loan should be taken from Registered Financial Institutions or Charitable institutions in India.
  5. Loan can be taken for higher studies for himself, spouse and children only.

4. Additional Deduction for Interest on Home Loan (first time purchase):

This is good option that can be availed by first time buyers.

  1. This deduction would be allowed only if the value of the property purchased is less than Rs.50 lakhs and the value of loan taken is less than Rs. 35 lakhs.
  2. The loan should be sanctioned between 1st April 2016 and 31st March 2017.
  3. The benefit of this deduction would be available till the time the repayment of the loan continues.
  4. Deduction for interest paid is allowed to Rs. 50,000/- per annum.

5. Deduction for Interest on Home Loan:

Deduction for Interest on Home Loan (whether property is self occupied or not self occupied) (U/S 24) will serve as one more cherry on the cake.

Self occupied property: Deduction is allowed for interest paid on housing loan up to Rs. 2,00,000/-.
Not self occupied property: There is no limit of deduction for interest paid on housing loan.

Deduction allowable as per detail below:-


Particulars Principal Repayment(covered in Point 1) First Time Purchase(covered in Point 4) Interest on Home Loan(covered in Point 5)
Self occupied property 1,50,000 50,000 2,00,000
Not Self occupied 1,50,000 50,000 No Limit

6. Tax savings from Donation/ Charity:

Charity and donations are another smart way to become social figure as well as save tax on amount paid.

  1. Donation made towards certain relief funds, charitable organizations, Societies (which are registered under income tax act for deduction u/s 80G) is eligible for deductions.
  2. Donation in kind of items such as food material, medicines, etc.; are not eligible for deduction.
  3. Deduction will be available whether 50% or 100%.
  4. Payment should be made by any mode other than cash, if amount > Rs. 10,000.

7. Save tax while paying Rent:

If you are paying house rent and House Rent Allowance (HRA) is not a part of salary, even then you can save your tax on deduction u/s 80GG.

  1. Deduction is available to an Individual or HUF.
  2. The taxpayer is either self employed or salaried person (but does not receive any benefit of deduction under section 10 (13A) for House Rent Allowance.
  3. The taxpayer himself or spouse or minor child or HUF of which he is a member should not own any property at the place where he is employed or carries any business or profession.

Deduction shall be least of the following:-

  1. 5,000/- per month
  2. 25% of the total income*
  3. Actual Rent paid less 10% of the total income*

* Total Income means: - Total Income of the taxpayer for the year before claiming any deduction u/s 80GG.

8. Save tax on Interest received on Saving Account:

  1. Interests on FDs are not covered u/s 80TTA.
  2. The Maximum deduction is allowed up to Rs. 10,000/-per annum on which you can save tax.

As you aware there are no change in income tax slabs for senior citizens, a little bonus is allowed for interest income on their savings account and FDs are allowable to the extent of Rs. 50,000/- u/s 80TTB for the F.Y. 2018-19. Example comparing Income Tax Savings for Senior Citizens u/s 80TTA & 80TTB for Financial Year 2017-18 and 2018-19

  1. Savings interest of Rs 15,000
  2. Interest on fixed deposits of Rs 80,000
  3. Other income of Rs 2,50,000

Answer


(Amount in Rs)
Particulars F.Y. 2017-2018 F.Y. 2018-2019
Savings interest 15,000 15,000
FD interest 80,000 80,000
Other income 2,50,000 2,50,000
Gross total income 3,45,000 3,45,000
Less: Deduction under Section 80TTA 10,000 -
Less: Deduction under Section 80TTB - 50,000
Taxable income 3,35,000 2,95,000
Tax including cess 1,802.50 -
Savings 1,802.50

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