Tax Planning is very essential for working individuals and there is a need for one to understand thoroughly the different ways through which one can save their earnings for the future. In today's world wherein most of the people end up saving their hard earned salary amount within a few days of receiving it, it is necessary to first save it for the future and spend later.
The Indian Income Tax Act allows deductions for individuals which can be claimed to save tax at the time of filing the Income Tax Return. One has to do proper tax planning in advance to avoid unnecessary payment of tax.
The government of India has given a wide range of options for the individuals as well as business organizations to save their earned money. By saving money in one or the other forms, individuals, as well as firms, will be eligible for securing deductions.
Let's take a sneak peek view of how to save tax by investing in the following investment options.
The following are the ways through which an individual can save tax
• Saving Tax Under Section 80C, Section 80CCC, Section 80CCD
The common man in India can save under any of the following sections, that is Section 80C, Section 80CCC, Section 80CCD up to Rs 1,50,000 per annum and the same can be claimed as tax deductions for a year.
The following are the list of instruments specified by the Government of India which are eligible for tax planning under Section 80C, Section 80CCC, Section 80CCD.
• Life Insurance Policy
• Public Provident Fund
• Employee Provident Fund
• Pension Plans
• National Savings Certificate (NSC)
• Equity Oriented Mutual Fund
• Five Year Tax Savings Fixed Deposit
Individuals will be eligible to claim for deductions only till Rs 1,50,000 per annum under any of the above-listed investments, the only exemption is the National Pension Scheme (NPS). The government of India has introduced a new rule starting from fiscal 2015 - 2016, that an additional deduction of Rs 50,000 is provided under Section 80CCD under the National Pension Scheme (NPS) apart from Rs 1,50,000.
• Saving Tax Under Home Loan
If an individual has a home loan, they can claim for deduction for repayment of only the principal amount under the Section 80C of the Income Tax Act of 1961. Apart from this, one can also claim for interest paid on home loan under Section 24. The maximum amount allowed for deduction under this is Rs 2,00,000 and in some of the cases, there is no maximum limit for claiming the deduction on repayment of interest amount on home loans.
• Saving Tax Under Section 80D, Section 80DD, Section 80DDB
The government of India provides individuals and their families to insure themselves with health insurance schemes and provides a rebate for the same under the Income Tax Act of 1961.
Individuals can claim for deductions under the following sections for Income Tax purposes
Section 80D: Medical Insurance Premium of Self or Spouse or Children
Section 80DD: Medical Treatment of Handicapped Dependents
Section 80DDB: Treatment of Specified Diseases
An individual is eligible to claim a deduction of up to Rs 25,000 for paying medical insurance premium paid for self or spouse or children. If the insured person is a Senior Citizen, then the eligible amount for deduction is Rs 30,000 under Section 80D.
If an individual is paying medical insurance for his/her parents, then the premium amount of Rs 25,000 is eligible for deduction under Section 80D. If the individual's parents are senior citizens then Rs 50,000 is eligible for deduction under Section 80D starting from fiscal 2018 - 2019 onwards. As the health insurance cover for the elderly people is expensive, the government of India has decided to encourage the aged people to get themselves medically insured.
• Saving Tax via Education Loan Under Section 80E
The education in today's era has become an expensive affair. If an individual has taken an education loan for higher studies either upon himself or spouse or children or to someone of whom he/she is a legal guardian, then the individual can claim for deduction under Section 80E.
The taxpayer can claim for repayment of interest amount of the education loan under the Section 80E and cannot claim any rebate for the repayment of principal amount.
The deduction is available for a maximum tenure of 8 years or until the interest amount on education loan is repaid by the individual (whichever is earlier).
• Saving Tax via Donations Under Section 80G
If an individual has made any donations during a financial year for social or charity or philanthropic or for National Relief Fund purposes then they can claim for deduction under Section 80G of the Income Tax Act.
The amount of donations made either via cash or cheque are eligible for deductions under Income Tax in some cases the contributed amount is eligible for 100% deductions and in some cases it is allowed only till 50% of the total amount.
If the deductions are made via cash, then an individual can claim for deduction up to Rs 10,000 only. If the contributions made are above Rs 10,000, then it has to be made via cheque only for claiming deductions under Section 80G.
Financial planning plays a key role in saving tax. One has to plan ahead before the commencement of next financial year and invest in those schemes which fall in line with their financial goals, thus investing wisely and saving tax smartly.