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Everything You Need To Know About Saving Income Tax

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Everything You Need To Know About Saving Income Tax
October 30, 2023

Table of Content

 

Tax planning allows you to maximise your savings by reducing your tax burden. The Income Tax Act offers taxpayers certain deductions against savings, expenditures, and particular investments. While every law-abiding citizen must pay taxes, saving income tax is crucial for a financially safe future. There is several tax saving investment options available in India. Let’s explore some good options to help you save.

Popular Tax-Saving Investments

A. Under Section 80C of the Income Tax Act

1. Life Insurance 

Life insurance policies like term life insurance plan, savings plans & others have become a popular tax-saving tool in India. These plans provide your loved ones with a payout if anything happens to you during the policy tenure. Apart from securing your family’s financial future, insurance plans also allow you to claim deductions up to INR 1, 50,000 per year against your premiums. In case of an individual, exemption is available for premium paid on policies for self, spouse and children. In case of HUF, exemption is available for premium paid on policies for any member thereof.

2. Employee Provident Fund

The Employee Provident Fund (EPF) helps working individuals build a corpus for their retired life. Under this retirement scheme, employers and employees invest a certain amount in the fund each year. The accumulated corpus and the accrued interest do not attract taxes, making it one of the most popular tax-saving investments. Your contributions towards your Employee Provident Fund (EPF), also qualify for the exemption up to INR 1, 50,000 per year under Section 80C.

3. Public Provident Fund

Contributions made towards the Public Provident Fund (PPF) are eligible for tax deduction under Section 80C#. The maximum deposit limit for PPF is Rs. 1, 50,000 a year, which means you can claim the entire deposited amount as an exemption under the Income Tax Act.

4. Equity-Linked Saving Scheme (ELSS)

ELSS investments are eligible for tax exemption under Section 80C#, up to the maximum limit of Rs. 1.5 lakh. These investments come with a mandatory lock-in period of 3 years.

5. Bank Fixed Deposit Scheme 

Fixed deposits provide returns at a steady interest rate, offering guaranteed returns on your investment. They have a minimum lock-in period of five years, helping you save for medium-term financial goals. As with other investments under Section 80C, you can claim a maximum deduction of INR 1, 50,000 per year.

6. Unit-Linked Insurance Plan

Unit-Linked Insurance Plans (ULIP) provides the dual benefits of life coverage and investment opportunities. Buying ULIP plans have become one of the most popular tax-saving investments in the recent past. These plans allow policyholders to decide how to invest their money while safeguarding their family’s financial future.

7. National Savings Certificate

The National Savings Certificate (NSC) is a government saving scheme that you can open with the post office. It’s a tax-saving investment that helps working individuals save up for the future. The NSC is a low-risk investment option and provides guaranteed returns, making it a safe plan. The NSC offers tax benefits of up to INR 1, 50,000 per year, making it incredibly popular with individuals who have a low risk appetite.

8. Home Loan Principal

If you’ve opted for a home loan, you can avail of a deduction of up to INR 1, 50,000 against your principal amount.

B. Under Section 24

Home Loan Interest

You can claim a deduction of INR 2 lakhs from your taxable income against the interest amount you pay on your home loan under Section 24# of the Income Tax Act.

C. Under Section 80D

Health Insurance 

Like life insurance, health insurance plans also provide financial stability during difficult times. These plans help you deal with medical emergencies and hospital bills after an accident. Apart from these benefits, health plans are also a good option for saving income tax. Premiums you pay for your own health insurance or your parents’ policies can get deducted from your taxable income. You can get a maximum deduction of INR 25,000 (for self, spouse, children) and INR 25,000 (for parents) against your health premiums under Section 80D# of the Income Tax Act. For senior citizens (above 60 years of age) these health plan benefits are capped at a higher amount of INR 50,000 (for self, spouse, children) and INR 50,000 (for parents).

D. Under Section 80E

Education Loan Interest

Under Section 80E# of the Income Tax Act, you can avail of a deduction for interest paid on an education loan taken for higher education. The entire interest amount paid in a financial year can be availed of as a deduction and this can be availed for a maximum of 8 years.

E. Under Section 80EE

Home Loan Interest

You can claim a deduction of INR 50,000 from your taxable income against the interest amount you pay on your home loan. You are eligible to claim the deduction as long as you are purchasing a property for the first time and the value of the property is less than INR 50 lakhs. The deduction is only available when the loan amount is less than INR 35 lakhs and has been sanctioned by a financial institution or housing finance company. The loan must be sanctioned between 01.04.2016 to 31.03.2017.

F. Section 80GG

Rent Paid

Individuals who do not receive House Rent Allowance (HRA) and do not own a residential accommodation in the city where they are employed can claim a deduction against the rent paid for accommodation.
You can claim a maximum deduction of:
1. INR 5,000 per month or
2. the actual rent paid minus 10% of your total income or
3. 25% of your total income


-whichever is lower.

The total income to be considered should be before allowing deduction for any expenditure under this section.
Only individuals and Hindu Undivided Families (HUFs) can claim the deduction under Section 80GG#.

G. Section 80TTA

Interest Earned

You can claim a maximum tax deduction of INR 10,000 per year against the interest earned on savings accounts. The interest earned on fixed or recurring deposits does not qualify for the deduction. Individuals and HUFs are eligible to claim the deduction under Section 80TTA#.

H. Section 80TTB

Interest Earned

Section 80TTB# is a provision whereby a taxpayer who is a resident senior citizen, aged 60 years and above, can claim maximum of Rs. 50,000 per year, as a deduction against the interest earned on deposits.

Things to Consider While Planning Looking for Tax Investment Options

To avoid last-minute tax-planning hassles, you must start planning your tax-saving investments at the start of the financial year. Waiting till the end of the year, results in hasty and impulsive decisions that may not be right for you. Here are a few tips to help you plan your taxes for the financial year.

  • Check whether you already have tax-saving investments. Most people already contribute to the EPF or have insurance policies.
  • Check that your investments allow you to claim the maximum eligible deduction. If not, check whether you can invest more to maximise your savings.
  • Choose the ideal tax-saving investments based on your risk appetite and goals. 

Now that you have more information on tax-saving options, you can start the new financial year by planning accordingly. Ensure you check all the options available and make an informed decision about the kind of tax-saving investments you want to include in your financial plan.

Related Article:

ARN - INT/ED/10/23/5703

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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We at HDFC Life are committed to offer innovative products and services that enable individuals live a ‘Life of Pride’. For over two decades we have been providing life insurance plans - protection, pension, savings, investment, annuity and health.

Disclaimer

This material has been prepared for information purposes only, should not be relied on for tax or accounting advice. It is requested to seek tax advice of your Chartered Accountant or personal tax advisor with respect to your personal tax liabilities under the Income-tax law.

#Tax benefits are subject to conditions under Sections 80C, 80D, 80EE, Section 24 and other provisions of the Income Tax Act, 1961.

#Tax Laws are subject to change from time to time.

#The customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law

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