Income tax is the money that the government collects from individuals to fund its various expenses. The amount of tax you pay depends on which income tax slab you fall under, and therefore, on how much you earn. Simply put, the higher the income, more the tax.
Minimise Your Taxable Income!
There are many ways for individuals to bring down their tax outgo. These are through deductions that are enumerated under the sections of the Income Tax Act. Effective planning of investments can ensure that taxable income is reduced.
Here are some of the broad categories:
Section 80C
Most salaried individuals make use of Section 80C of the Income Tax Act to make basic tax-saving investments. The total deduction to taxable income available under this section is Rs 1.5 lakh.
The first thing you can do is check your contribution to the employees’ provident fund. This is deducted by your employer from your taxable income.
Additionally, under Section 80C, you get deduction on the payment towards principal amount in a home loan’s equated monthly installment. But this will be included under the Rs 1.5 lakh limit.
Other Avenues
Another Rs 50,000 can be saved by investing in the National Pension Scheme under Section 80CCD of the Income Tax Act. Note: You can claim deductions over and above this under the broad limits of Section 80C.
Under Section 80D, you can take a health insurance cover for yourself and a premium of up to Rs 25,000 is deductible from your taxable income. Additionally, if you have senior citizens at home, you can buy health insurance policies for them and avail of a further deduction of up to Rs 50,000 for the premium paid.
If your salary does not include a provision for house rent allowance, Section 80GG allows you to reduce up to Rs 60,000 from your taxable income.
Education loans are sometimes a drag, but Section 80E of the Income Tax Act lets you deduct the entire interest paid during a year from your taxable income for your own higher education, or that of your spouse or children. This benefit is available for eight years starting from the year you start repaying the loan, or till the interest is fully repaid.
As part of its bid to encourage home ownership, the government provides benefits to first-time home buyers under Section 24 of the Income Tax Act. Interest payments on a housing loan to the extent of Rs 2 lakh can be reduced from the taxable income. And the best part is that your spouse is also eligible for a similar deduction, so the total benefit afforded is Rs 4 lakh towards payment of the interest portion of your housing loan EMI.
Finally, the interest you earn from your savings bank account up to Rs 10,000 is also deductible from your taxable income.
Senior citizens have some added advantages that were introduced in Budget 2018. Firstly, there is no tax applicable on interest worth Rs 50,000 that is earned on fixed deposits. Second, the deduction under Section 80D for the mediclaim premium paid for senior citizens was raised from Rs 30,000 to Rs 50,000.
Lastly, you’ll notice that from this year, instead of a separate allowance for medical expenses and transport, a standard deduction of Rs 40,000 has been introduced for salaried individuals.
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