Want to save Income Tax? - Know what Deductions can do

As citizens, we have big concerns about saving our taxes; after all, it’s our hard-earned money. But we know with the rise in income, our tax brackets tend to bulge too. We have all been there with the feeling of helplessness when it comes to saving taxes. Probably so, because we do not know the intricacies of deductions and tax exemptions laid by the Indian government. 

But what if we tell you that many of you could save taxes to almost a hundred per cent with the right investments? Didn’t you know it already? The article below will walk you through the many deductions that you can claim in your return and save the money for a bigger purpose. 

How to Understand Tax Saving Norms?

Most of our salaried employees are clueless about the deduction sections and allowances and all we have to say is, it is okay. You don’t have to read a bunch of articles that claim to educate you on tax-saving; you only have to be smart. Let’s analyze the norms with some simplification.

What is Deduction?

When your earnings cross a stipulated amount, the government mandatorily requires you to pay a part of that for the welfare of the country. This amount is termed as Tax. The more you earn, the more tax you pay. Deduction implies reducing a chunk of your income (while filing taxes) so that you do not have to pay extra taxes. All you have to do is know if you qualify for the respective deduction or not. Here is a table that will lay the sections, list the avenues and the respective amounts you can claim for deduction.

Tax saving investments in Section 80C, 80CCC and 80CCD(1) exempts your income to a limit of Rs. 1,50,000. Here is a list of schemes allowed under 80C deduction.

LIC Premium- The cost you pay to the life insurance policy provider. It can be charged monthly, quarterly or annually.

1. Employee Provident Fund (EPF) – A retirement benefits scheme to which you contribute a per cent of your salary every month. It is optional for employees earning more than Rs 15,000 a month.

2. Public Provident Fund (PPF) – A retirement scheme offered by the government to everyone who opts to deposit a minimum of Rs 500 or a max of Rs. 1.5 lakh annually.

3. Equity Linked Savings Scheme (ELSS) – An investment scheme that allows taxpayers to invest a max of Rs. 1.5 lakh in several mutual funds. 

4. Tuition Fees – Fees paid to school, college or an educational institution for two children can be deducted from the income.

5. Repayment of Home Loans- EMI paid towards principal amount for your home loan is also deductible under 80C.

6. Sukanya Samriddhi (SSY)- Any amount deposited under SSY to a limit of Rs 1.5 lakhs is deductible.

7. National Savings Certificate (NSC)- NSC is a fixed income investment scheme that allows you to open with any post office and deduct the deposit plus interest earned.

8. Fixed Deposit(Tax Saver)- Tax saver FDs are different from regular FDs. Here the lock-in period for money is 5 years. The amount deposited is deductible to a limit of 1.5 lakhs under 80C. The deposits can be made in a bank or post office.

9. ULIP – An investment cum insurance plan that allows deduction U/S 80C to a limit of 1.5 lakhs.

10. Infrastructure Bonds – Investment in infrastructure bonds are deductible to a maximum of Rs 20,000 u/s 80C.

11. Annuity Pension Plans- An investment in the annuity pension plan is deductible u/s 80CCC to a limit of Rs1.5 lakhs.

12. National Pension Scheme (NPS)- A pension scheme mandated for all government employees (optional for private employees) is an investment cum pension scheme. Employee’s contribution to NPS is deductible u/s 80CCD (1) to a limit of Rs. 1.5 lakhs. Under 80CCD (1b), an additional deduction of Rs 50,000 is allowed on the invested amount to an, provided the employer has also contributed to NPS.

What’s the Takeaway?

You must have got a peek into how much you can save with the right investments. Many people get sceptical about investing in an insurance plan and even in mutual funds, but you will be amazed at the interest rates the equities and mutual funds can get you. They are like additional incomes while ensuring you save taxes.  Similarly, it is clever to invest in a pension plan so that you can save up some taxes now while also planning for a peaceful retirement. Didn’t you always want that? It’s time you know your privileges. 

“If you want to be rich, do not focus on your earning; rather focus on the right investment.”

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