We know there are tonnes of articles on the internet about the clichéd question from every person “How do I save on tax?” but we are sure you will have at least one new takeaway from this article.
It’s obvious that all of us want to increase our incomes and grow rich but want to avoid taxes. If given a choice, then most of us want to not just reduce our taxes but don’t want to pay at all. Though the government expects us to pay taxes, it also has provided us with legal ways to save on taxes.
So in this series of articles on taxes and tax planning, we will be looking at value added inputs for you to make the right call or just to be informed about how things work so you need not just nod to everything your tax filer says. To begin we will have an overview of taxation in India and cover the topics comprehensively in the following articles.
Starting with Individuals, we get it, we totally understand that you don’t want even a single penny of your hard earned money to lose you. But it is generally not wise to invest only to save on taxes. Why? because your goals are always equipped with a time frame and investing in instruments only to save taxes can hurt them.
Since the list is long, the description will be kept in short, simple words so remember that all these have exceptional cases and come with terms and conditions and not everything can be availed by everyone.
1. Interest from savings bank account: [Section:80TTA/80TTB] We all have a bank account and did you know the interest earned annually can be exempted up to ₹10,000and ₹ 50,000 for senior citizens.
2. Interest from NRE account: Indian government is always kind to its sons and daughters abroad. So if one has a Non-Resident External account and is treated as a person resident outside India under Foreign Exchange Management Act (FEMA) then all the earnings from interest are completely tax free but it is to be noted that this amount might be taxed in the country they reside in.
3. Scholarships: [Section: 10(16)] Good news for the merit students, the scholarship you receive from government or your institution is completely tax free!
4. Profits from equity investments: The LTCG (Long Term Capital Gain) of amount in excess of ₹1,00,000 on sale of equities or equity funds will attract a capital gains tax of 10% and any amount less than this is exempted.
5. Marriage gifts: [ Section: 56(2)] Got married recently and were showered with gifts from your relatives? Don’t worry you need not hide these from the IT department these are all completely tax free.
6. HUF account for extra income: In case you are a consultant or blogger or have any similar source of income as your secondary income then you can get exemptions on this by depositing it in the Hindu Undivided Family or simply HUF Account. Note that this is available only to Hindu, Sikh and Jain families and you will need a separate PAN and bank account for this.
7. Inheritance wealth: Anything that you receive through “will” not just from your parents but from uncles or grand parents, you need not worry that you have to pay taxes on this.
8. Section 80C: The buzz word right now for tax saving “Sec 80C” is being regularly heard. But what it essentially means is it gives a maximum exemption of ₹ 150,000 combined. Common instruments/ expenses under this section are PPF, NPS, Premium on life insurance, NSC, ELSS, Home loan principal repayment amount, Sukhanya Samriddhi Scheme, post office deposits and tuition fee to name a few. This will be discussed separately in detail along the series.
9. Additional contribution to NPS: [Section: 80CCD (1B)] Additional contribution towards NPS can give exemptions upto ₹ 50,000.
10. Provident fund income: By keeping the PF active for at least 5 years before withdrawing, you also have an advantage of not being taxed for the interest from this account.
11. Home loans: [Section: 80C, 24 &80EE] Home loan can be painful but if used efficiently, it can help you save taxes. Apart from the part included in 80C deduction, the interest portion offers a deduction of up to ₹ 2,00,000 separately. The benefit of home loan interest for first time buyers is up to ₹ 50,000 (there are certain conditions for this as well)
12. Education loans: [Section: 80E] Education loans are a teeny little less stressful thanks for the interest being completely non-taxable.
13. Medical insurance: [Section: 80D] Almost all of us are insured and we can avail a deduction of up to ₹ 25,000 for self, spouse and children combined and an additional ₹25,000 for parents or ₹ 50,000 for parents (in case they are more than 60 years old). If you as well as your parents are more than 60 years old then a deduction of up to 50,000 can be availed for self and 50,000 for parents separately.
14. Medical expenses (Disabled Individual): [Section: 80DD] Not a pleasant way to save taxes but you get a deduction of ₹ 75,000 up to ₹ 125,000 based on the severity of the disability or mental illness for expenses incurred for treatment and well being.
15. Medical expenses (Disabled Dependent): [Section: 80U] Similar benefits apply to dependents who are disabled as well. These deductions can be availed only with valid documents backing the claims.
16. Medical treatment (Specified Disease for Self or Dependent): [Section: 80DDB] Specified Diseases namely- Neurological diseases, Malignant Cancers, AIDS, Chronic Renal Failure, Hematological disorders. The expenses allied to these can be claimed up to ₹ 40,000 for self or dependents and ₹ 100,000 for senior citizens.
17. Charity: [Section: 80G] Sometimes our golden heart wants to do noble deeds and these donations to registered or recognized charitable institutions are fully or partially exempted from being taxed provided they are backed by valid receipts.
18. Donations to Political Parties: [Section: 80GGC] Not many do this (openly at least) but full exemption is available for donations to political bodies.
This list covers mostly everything that can be used to save taxes. Various other aspects of tax saving based on profession will be discussed in the upcoming posts… Stay Tuned!
DISCLAIMER: This article does not in any way motivate or mislead the readers to avoid paying taxes. We believe as citizens of our country and using its infrastructure, we need to contribute to maintain, develop and build infrastructure. So it has to be a sense of responsibility and not just our duty to pay taxes.
Secondly, since these are the points as per the rules from the Income Tax Regulations, similarities might be seen so please excuse any resemblance.
The benefits discussed above are all subject to various terms and conditions. Please consult a tax planner before considering these to be applicable to you.