6 Plans You Need To Know To Save On Income Tax

What Is Income Tax?

Income Tax is a form of Direct Tax which is to be paid by an individual or a company or any person who is earning an income. The rate of income tax varies from person to person depending upon their level of earning and which tax bracket they fall under. Tax slabs change on an annual basis, as of February 2020 individuals earning an annual income of less than Rs.2,50,000 are exempted.

Are There Different Types of Income Classifications?

Income can be bifurcated in the following five ways:

• Income from salary
• Income from capital gains
• Profit or gains from business or profession
• House property income
• Income generated from other sources.

6 Ways To Reduce Income Tax

1. Use Your Limit Under 80C

The Government has provided various schemes under section 80C for individuals to claim tax deductions. A total of Rs.1,50,000 can be claimed under this section. Here is a list of popular options to save tax under section 80C.

• Public Provident Fund
• National Pension Scheme
• Premium Paid for Life Insurance policy
• National Savings Certificate
• Equity Linked Savings Scheme
• Home loan’s principal amount
• Fixed deposit of five years
• Sukanya Samariddhi account
• Children’s tuition fees

2. Saving Account Interests

The total interest earned through savings accounts is exempt for taxation purposes for a limit of up to Rs.10,000 under section 80TTA. This limit increases to Rs.50,000 for senior citizens under section 80TTB. Since for many senior taxpayers, the major source of financial support might be their savings themselves.

-Sources considered for the interest earned are:

1. a) Bank Saving Account
2. b) Post office saving account
3. c) Co-operative society saving account

3. Availing A Home Loan

In accordance with section 80C, one can plan a home loan wisely to save on tax as per the provisions of the Income Tax Act, 1961. Under Section 24 the maximum deductible amount for self-occupied houses can be Rs.2 lakh. For rented properties, you can claim any amount you’ve actually paid as interest. There is no limit. There are also additional interest deductions for first-time buyers.

4. Help Out A Charity

This deduction is included under section 80G. Any individual or company can save money on taxes by donating to certified charities. One is required to provide a valid certificate from the charity organisation donated to, to avail this deduction.

5. Secondary Incomes

For individuals earning income from secondary sources, money paid as tax for income can be saved. One requires to open a separate HUF account for their secondary source of income. As per section 80C, this amount can be invested to avail tax benefits. If a person is also earning through freelancing this will constitute their secondary income. 

6. National Saving Certificate (NSC)

Individuals can invest their money in National Saving Certificates to claim tax deductions. Unlike FDs, NSCs have no restriction on the amount of investment you make. As per section 80C, you can only claim a deduction for investments of up to Rs.1.5 lakh in a financial year. The interest rate is subject to change but at present is at 7.9%.  

Be a conscious consumer and save on your income taxes to the max. It is always advisable to consult a financial advisor first to only invest in plans that suit you perfectly. Time to fill that piggy-bank with mindful investments and plans.