Among few of the things that can’t be beat, one is taxes. No matter how much you earn, you cannot overpower taxes as your tax will also rise more as you earn more. Many of us do feel pained when one has to pay our income tax especially when we don’t get worthy returns with respect to the taxes they pay from the government.
Tax evasion is illegal in India and can lead to penalty. But that shouldn’t deter you from saving taxes as much as possible through legal means which the Income Tax Act of 1961 allows you to save.
It is also very much possible that a good proportion of your income is utilized in important investments that are much necessary and therefore the government through the IT Act has given windows where you can save your tax payment by claiming it.
This guide will help you in finding out the best tax saving investments. It is not just about avoiding paying taxes but also about doing best investments that give you good returns. Many people do not research well and end up making bad choices in their investments to avoid taxes. We will help you out with this in making best tax saving plans.
Table of Contents
- Best Tax Saving Investments for You to Save Your Income Tax:
- Deduction Under Section 80C of IT Act 1961:
- Methods of Saving Taxes as per Income Tax Act of 1961:
- Section 80C of IT Act: Deduction on Investment
- Section 80CCC of IT Act: For Insurance Premium
- Section 80 TTA: Interest on Saving Account
- Section 80GG of IT Act: Deduction on House Rent
- Section 80E of IT Act: Interest on Education Loan
- Section 80D: Health Insurance
- Section 80DD of IT Act: Disabled Dependent
- Section 80DDB: Medical Expenditure
- Section 80G: Donations
- Donations with 50% Exemption:
- Section 80GGC: Donations made to Political Parties
- Section 80U: Tax Deduction for Disabled
Best Tax Saving Investments for You to Save Your Income Tax:
Most of us try to file income tax returns just days before the last day. Some start to plan about saving taxes just weeks or months before the last date. But if you really aim to save your taxes, you should plan it on the very first day. Certain sections of the IT Act give ample of window to people to save taxes by investing in the right place.
Deduction Under Section 80C of IT Act 1961:
Deduction under section 80C applies for all those who are liable to pay income tax. You can save 1.5 lakhs of your income from taxes under this section. In this, you have to invest the said amount in some of the important places and then you can claim exemption.
There are various investment schemes that allow you to save your income tax. Some of them are:
- Public Provident Fund or PPF that gives you 7-8% of return with a lock up period of 15 years
- You can make a FD for a period of 5 years for which you will get 6-7% of return
- Then there is a National Saving Certificate that gives you 8% of return for a lock in period of 5 years
- National Pension Scheme gives you a return of 12-14% with lock-in period of life time
- Lastly, ELSS gives your highest return of 15-16% with 3 years lock in period
These are some of the tax saving investments with good returns that you can make in your 80C exemption of 1.5 lakhs. Apart from this, you can buy medical insurance for yourself or your parents who are senior citizens and can claim 25,000-50,000 of tax relief under section 80.
You can also get exemption by taking home loan under section 80EE of Rs. 50,000 for home loan interest. Many people take it to avoid income tax and it is viable as well.
You can also claim relief from taxes in the form of tuition fee for your child of Rs. 1.5 lakhs. It is covered under section 80. This benefit is only available for two children. It is also applicable for adopted children. The education must be regular whether at school, college or university.
Methods of Saving Taxes as per Income Tax Act of 1961:
Section 80C of IT Act: Deduction on Investment
You can deduct 1.5 lakhs from your taxable income under this section through investment. It is available for both individuals and HUFs. HUFs mean Hindu Undivided Family. These investments can be in the form of PPF, ELSS, NPS, tuition fee for children, etc.
Section 80CCC of IT Act: For Insurance Premium
For any amount so insured in LIC or any other insurer, you can claim deduction under this section. Such annuity insurance will be for an insurance plan for which pension is referred as per section 10 (23AAB). The pension so received is taxable.
Section 80 TTA: Interest on Saving Account
Interest earned from savings account of Rs. 10,000 is tax free as per this section. You as an individual and HUF can claim the same. This section doesn’t apply for FDs, RDs, or corporate bonds.
Section 80GG of IT Act: Deduction on House Rent
Any individual can claim deduction of taxes where house rent is paid and HRA is not paid by the employer. Given the fact that the taxpayer, spouse and child doesn’t give a residential apartment of their own. The individual must be living on rent and paying rent. Total deduction is available of Rs. 5,000 in all cases.
Section 80E of IT Act: Interest on Education Loan
Any individual who is studying for himself, for spouse, for child or for whom he is a legal guardian, can claim this benefit for 8 years. From the day the interest of loan starts to the day till it gets paid. There is no limit for the amount claimed. Anyone who is pursuing higher education can claim.
Section 80D: Health Insurance
Under this section, an individual and HUF can claim deduction of Rs. 1 lakh in the name of medical insurance. Rs. 25000 is available for the taxpayer, spouse and children. While for parents, Rs. 25,000 of amount can be claimed in medical insurance. If your parents are above 60 then the amount of Rs. 50000 can be claimed. Not more than a lakh Rs. Can be claimed as medical insurance.
Section 80DD of IT Act: Disabled Dependent
A total of Rs. 75,000 to Rs. 125,000 can be claimed for taking care of disabled people in your family after certification from the designated authority. Rs. 75,000 claim can be made for treatment and care of a 40%-80% disabled person while for a severely disabled person with more than 80% of disability, Rs. 1.25 lakh claim can be made.
Section 80DDB: Medical Expenditure
For HUF and individual Rs. 40,000 of deduction is available for any kind of medical expenditure incurred. For HUF, this is available for any member of the HUF. The limit of Rs. 40,000 is for those who are below the age of 60.
For senior and super senior citizens, the amount so claimed can be Rs. 1 lakh for medical expenditure. This amount can be both claimed by the taxpayer and on behalf of the senior citizen of the HUF family. One has to obviously show the required receipt from the medical authority of the expense incurred in medication.
Section 80G: Donations
Under this section, donations made for social causes as notified under this section are exempted from taxation with 100% exemption and 50% exemption. Here is the list of donations where 100% exemption can be claimed.
- National Defence Fund set up by the Central Government
- Prime Minister’s National relief fund
- An approved educational institute or university of national eminence
- National Foundation for communal harmony
- National Illness Assistance Fund
- Medical relief fund set up by state government for poor
- National Children’s Fund
- National Sports Fund
- National Cultural Fund
- Fund for Technology Development and Application
- Chief Minister or Lt. Governor relief fund for any state
- Swachh Bharat Kosh since 2014
- Clean Ganga Fund since 2014
- National Fund for Control of Drug Abuse (applicable from financial year 2015-16)
- Chief Minister’s Earthquake Relief Fund, Maharashtra. The Army Central Welfare Fund or the Indian Naval Benevolent Fund or the Air Force Central
- Welfare Fund, Andhra Pradesh Chief Minister’s Cyclone Relief Fund, 1996
- Zila Saksharta Samiti constituted in any district under the chairmanship of the Collector of that district
- National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities
Donations with 50% Exemption:
- Prime Minister’s Drought Relief Fund
- The Rajiv Gandhi Foundation
- Indira Gandhi Memorial Trust
- Jawaharlal Nehru Memorial Fund
Both these donations have no qualifying limit. One can donate as much tax they want.
Section 80GGC: Donations made to Political Parties
You can claim 50-100% tax deduction if you pay donations to political parties for your choice as enunciated under section 29 of Representation of People’s Act.
Section 80U: Tax Deduction for Disabled
A person with 40% of more disability can claim tax exemption in this section up to Rs. 1.25 lakhs. A person suffering from the below listed disabilities can claim benefit under this section.
- Low Vision
- Mental Retardation
- Mental Illness
- Locomotor Disability
- Hearing Impairment
A person with 40% or more of disability but less than 80% can claim Rs 75,000 of exemption while those who are severely disabled and are 80% or above disabled can claim 1.25 lakhs of exemption.
Thus, one plans accordingly right from the first day to claim the benefits of various provisions of the Income Tax Act. Smart planning from the first day gives you lots of windows to avoid paying taxes. Though paying taxes honestly must be your duty but legally saving taxes is also a right given by the very law that you must exercise.