Taxation is an essential part of any economy that employees and companies should consider. Regardless of where they live, people need to pay taxes, and India is no exception. It is certain that people might want to avoid paying taxes at a high level, they learn various ways to save income tax legally. This article provides brief information about income tax and saving tips for the Indian population.
List of Contents
- What Is Income Tax?
- 2 Types of Income Tax in India
- Income Tax Act. in India
- Section 80 EE
- 6 Tips to Save Income Tax in India
- 5 Benefits of Saving Tax in India
What Is Income Tax?
Income tax is a tax levied by the Indian government on individuals, Hindu Undivided Families (HUFs), companies, and other entities that generate revenue in India. The amount of tax they pay differs in terms of total income and income brackets. Taxation, however, will be governed by Indian government laws.
2 Types of Income Tax in India
Before we dive into the various ways to save income tax, there are two types of income tax in India that you should know: direct tax and indirect tax.
1. Direct Tax
Direct taxes are taxes that individuals and companies pay directly to the government. It is divided into progressive and regressive taxes.
A progressive tax is frequently applied in India. It is a tax in which an increase in the tax rate directly relates to an increase in the taxable amount. The percentage of tax that a person must pay increases with their income.
A regressive tax is when the tax rate decreases while the taxable income increases. This kind of tax is rarely applied in India.
2. Indirect Tax
Indirect taxes are imposed on goods and services in India. A few instances of indirect taxes in India include the Goods and Services Tax (GST), Excise Duty, Value Added Tax (VAT), and Customs Duty.
Income Tax Act. in India
Section 80C is a well-known method for Indians to save income tax. Under Section 80C, people can claim a deduction of more than Rs. 1.5 lakh from their taxable income by investing in certain financial instruments including, Public Provident Fund (PPF), Equity Linked Saving Scheme (ELSS), National Saving Certificate (NSC), Tax-saving fixed deposits (FDs), and Unit-linked Insurance Plan (ULIP)
Section 80C allows individuals to save income tax by investing in medical insurance, and they can deduct more than Rs. 1 lakh from taxable income. The maximum deduction for self and seniors allows for Rs. 50,000 and Rs. 25,000 for a self, spouse, and dependent children, respectively.
Section 80 EE
Under Section 80EE, a first-time homebuyer can claim an additional deduction of more than Rs. 50,000 on the interest paid on a home loan. The deduction typically exceeds the deduction allowed under Section 24 of the Income Tax Act, which is more than Rs. 2 lakh on the home loan interest.
6 Tips to Save Income Tax in India
In India, there are several strategies to help you save income tax. Here are some tips to reduce your tax liability and increase your savings.
1. Invest in Tax-Saving Schemes
Deciding to invest in various tax-saving options under Section 80C could save up to Rs. 1.5 lakh in taxes. Tax-saving options offered by the government include PPF, NPS, ELSS, and FDs.
2. Claim Deductions Under Section 80D
Under Section 80D, individuals can claim a deduction of up to Rs. 25,000 from the cost of health insurance they paid for themselves, their spouses, and their children. However, if you are a senior citizen, the deduction will be up to Rs. 50,000.
3. Claim Home Loan Interest Deduction
In accordance with Section 24(b) of the Income Tax Act, the interest paid on a home loan could be deducted up to Rs. 2 lakh for whom buying a new house
4. Donate to Charity
A deduction of 50% to 100% of a person’s donations to charitable organizations can be claimed under Section 80G. However, the amount of the deduction depends on the organization.
5. Claim HRA Exemption
According to Section 10(13A) of the Income Tax Act, people who receive a salary along with a House Rent Allowance (HRA) from employers can claim an exemption on the part of the HRA.
6. Reimburse Medical Expenses
The exemption of up to Rs. 15,000 can be claimed by employees who receive medical reimbursement from employers under Section 17(2)(v) of the Income Tax Act.
5 Benefits of Saving Tax in India
1. Increasing Disposable Income
Individuals can improve their disposable income, which they use for personal expenses, investments, or savings, by saving tax.
2. Encouraging an Investment
Some tax-saving investments allow individuals to invest with them, and they can save money while reducing their liability. Examples of tax-saving investments include Public Provident Fund (PPF), National Pension System (NPS), Equity Linked Saving Scheme (ELSS), etc.
3. Providing Financial Security
Tax-saving schemes provide a safety net for emergencies and unexpected situations.
4. Supporting Government Initiatives
Individuals are encouraged by the government to participate in programs such as Atmanirbhar Bharat, Swachh Bharat, and others by providing tax deductions through donations.
5. Tax Liability Reduction
Tax-saving investments provide a deduction under Section 80C of the Income Tax Act. of 1961. It reduces individual tax liability along with taxable income.
Overall, there are many legal ways to save income tax in India that benefit Indians significantly. Researching the method above could help individuals plan to secure their financial plans for the future as a result of economic growth. It is important to choose the plan that best suits your goal and carefully plan your tax-saving investment to gain more benefits and avoid the risks.
Yes, you can claim a tax deduction under Section 80C of Rs. 50,000 when you invest in the National Pension Scheme (NPS).
A tax-saving calculator in India helps you calculate the tax savings you can make through tax-saving investments under Sector 80C of the Income Tax Act.
Individuals can claim a maximum tax savings of up to Rs. 1.5 lakh annually by investing in various instruments such as PPF, ELSS, NSC, etc. Additionally, tax-saving opportunities are available in different sections, including Section 80D, which is used for health insurance, and Section 80E, which is used for education loans.
- Reduce Your Tax Liability and Keep More Money
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Read more: Taxes