Most of us believe and follow the saying that ‘a rupee saved is a rupee earned’. Saving money is very important for any average Indian. There are several ways to do it. One of the important ways is tax planning. It can help you save on taxes and increase your income. In India, the income tax act offers deductions for various investments, savings and expenditure done by the taxpayer in a particular financial year. This section will give you an overview about tax savings in our country.

In 2020, an individual salaried taxpayer was given the option to continue with the old tax regime and avail deductions/tax exemptions such section 80C, 80D deductions, HRA, LTA tax exemptions etc. or to opt for the new tax regime and do without approximately 70 deductions and tax exemptions.

Individuals often make purchases that enhance their quality of life, but these expenses can also lead to financial stress. To ease this burden, the government helps through tax breaks on direct taxes levied on one's salary. This tax relief helps individuals in managing their finances more effectively. Here are a few tax saving options you can consider:

• Personal home loan

One investment that provides both personal satisfaction and is a good tax saving option is availing a home loan. Home ownership is a key aspect of the Indian dream, and the government has implemented various programs such as PMAY (Pradhan Mantri Awas Yojana) and DDR (Delhi Development Authority) Housing scheme to make housing more affordable for all. In addition, the Indian tax system provides benefits to home loan borrowers through deductions on their taxable income. Under Section 80C of the Income Tax Act, up to ₹1.5 Lakh of the annual income spent on repaying the principal amount borrowed can be claimed as deductions. This means that a portion of the income spent on repaying the loan can be used to reduce the tax liability of the individual. Section 24(b) of the Income Tax Act provides tax exemptions on the interest component of the home loan. This means that the interest paid on the home loan can be claimed as a deduction up to ₹2 Lakh per annum. This is a significant benefit for home loan borrowers, as it helps reduce their financial burden. So, availing a home loan has several advantages, including the satisfaction of owning a home and the reduced tax liability. The government's initiatives and tax policies make housing more affordable and manageable for all. Additionally, if you let-out the newly acquired property on rent, the entire interest component is exempt from annual income tax calculations. Individuals purchasing a property for home construction can also benefit from section 24(b), provided the construction process is completed within five years.

• Purchasing health insurance

In India, the cost of medical treatment is on the rise, and the quality of healthcare is also deteriorating due to various reasons. This has made it essential for individuals to have health insurance to cover their medical expenses. With a health insurance policy, people and their families can mitigate financial stress during times of poor health. To encourage people to purchase health insurance, the government offers tax benefits. These incentives allow individuals to access quality medical care at leading healthcare institutions without incurring excessive costs. The tax benefits are provided under section 80D of the Indian tax code. Under this section, individuals can claim a deduction from their taxable income for the portion spent on premium payments towards their health insurance policy. The amount that is exempt from income tax calculation varies depending on the age of the insured person. For example, older individuals may be eligible for higher exemptions compared to younger ones. The tax saving option serves as an added motivation for people to avail health insurance, as it not only protects their health but also provides financial relief.

• Make smart investments

Investing in the capital market or participating in government-sponsored schemes can help increase wealth through higher returns and tax savings. To minimize income tax in India, you can invest in various instruments under Section 80C. If you are willing to take on risk, you can choose Equity Linked Savings Scheme (ELSS) in the stock market, which has a three-year lock-in period and allows for tax exemptions of up to ₹1.5 Lakh. Additionally, profits from investments below ₹1 lakh are tax-free. An alternative option is to invest in 5-year fixed deposits, which provide tax benefits without risk, and all investments up to ₹1.5 Lakh can be claimed for tax exemptions under Section 80C.

• Invest in government schemes

There are various government schemes that offer high returns on total investments along with tax waivers. Under Section 80C of the Income Tax Act,up to ₹1.5 Lakh can be claimed on such investments as tax waivers on total annual income. Tax exemptions can be availed by investing in the following plans:


• Senior Citizen Savings Scheme (SCSS)
• Sukanya Samriddhi Yojana (SSY)
• National Pension Scheme (NPS)
• Public Provident Fund (PPF)
• National Pension Scheme (NPS)

 

• House rent claims

Tax exemptions for House Rent Allowance (HRA) are provided under Section 10(13A) of the tax laws. To be eligible for this tax benefit, your salary must include an HRA component. The tax exemption for rent paid is calculated as the minimum of three factors: the annual HRA received, 50% of the annual salary if you live in a metropolitan city (40% if you live in a non-metropolitan city), or the total annual rent minus 10% of the basic salary. If your salary does not include an HRA component, you can claim tax benefits on your yearly rental expenses under Section 80GG by using the minimum of the following: a monthly rent payment of up to ₹5,000, 25% of your gross total income, or the total rent minus 10% of your basic salary. To maximize your tax savings in India, keep these points in mind.

• Charitable work

Cash donations to certain organizations are eligible for a tax exemption of ₹2,000 under Section 80G of the Income Tax Act. Bank transfers or wire transfers can receive full or partial tax exemptions, respectively.
If you donate to an organization that does scientific research or focuses on rural development, you can take advantage of deductions under Section 80GGA.
Cash donations received partial tax exemptions, while cheque or draft transfers received a full tax exemption.

• Providing support to a political party

According to Section 80GGC of the 1961 Act, donations to political parties or electoral trusts are tax deductible. If the political party is registered under Section 29A of the 1951 Representation of People Act, then the full amount of the donation will not be considered for income tax purposes. However, these donations must be made via wired or bank transfers, and cash deposits are not permitted.