How to Save Income Tax Guide (2020)

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how to save income tax

What is Income Tax Saving?

You need to pay tax on your income, in case it lies above the specified limit. Here, you also can save on your tax by adopting different tax saving options which are referred to as income tax saving. The higher the income you earn the higher the rate of tax you pay according to the slab rate specified by the government.

How to Save Income Tax?

Some of the best ways that specify you how to save tax are as follows:

1. Insurance:

You can buy insurance for yourself which helps in savings as well as covers the risk and overall is also an investment option. Here, you can find different types of insurances which one can choose based on the specific need, which are as:

  • ULIPs
  • Health Insurance

ULIPs

ULIPs Stands for the Unit linked insurance plan where the investor is offered investment as well as the risk coverage or protection. Here, the invested money will grow and you can claim tax benefit too.

Health Insurance

Health Insurance takes care of your health by investing the amount in the health care sector where the investor can claim the benefit in need of health care services. Here, you can save tax and claim the health benefit too.

2. Investments:

You have various investment options where your funds can grow while you save tax too, which are the various income tax saving schemes. Some of the investment option ways to save tax are as:

  • Mutual Funds
  • Tax saving fixed deposits
  • Post office time deposit
  • National Saving certificate
  • Provident Funds

Mutual Funds

Mutual Funds offer great returns on the invested amount and the lock-in period of the mutual funds’ investments are less compared to PPF and Equity linked saving scheme (ELSS).

Tax saving fixed deposits

Tax saving fixed deposits schemes typically holds a lock in period of 5 years. Here, you can have interest on your deposited fixed amount, while you can claim the benefit of tax too. Here, there exists limited to the invested amount in the tax saving scheme.

Post office time deposit

Post office time deposit scheme is the same as the Tax saving fixed deposit scheme where you can have interest on your deposited fixed amount, while you can claim the benefit of tax too. But, here there is no limit to the amount you can invest. You can claim the benefit of tax under 80C of the income tax act. Here, you need to deposit a minimum amount of Rs. 200 and the interest offered is 8.5{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} per annum.

National Saving certificate

National Saving certificate offers tax exemption where the minimum requirement is Rs. 100 to be invested and has a lock in period of 5 years or 10 years. One can claim the National Saving certificate from the post office.

Provident Funds

Provident Funds are eligible for tax deduction under 80C of the income tax act. Here, the funds are deposited for long term benefits to the investor.

How to Save income tax in India

You can save income tax in India by adopting the following ways to save:

1. By using Rs. 1.5 lakh limit wisely under section 80C:

Under section 80C the funds can be invested in various different securities and funds to save tax. Some of them are as:

    • Tax-Saver FDs
    • PPF (Public Provident Fund)
    • ELSS Funds
    • NSC (National Saving Certificate)
    • Life Insurance Premiums
    • National Pension System (NPS)
    • Home Loan Repayment
    • Payment of tuition fees
    • EPF
    • Senior Citizens Savings Scheme
    • Sukanya Samriddhi Yojana
  • Tax-Saver FDs: You earn an interest of 7 to 8 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} while investing in Tax-Saver FDs where the lock in period is 5 years.
  • PPF (Public Provident Fund): Provident Funds are eligible for tax deduction under 80C of the income tax act. Here, the funds are deposited for long term benefits to the investor.
  • NSC (National Saving Certificate): National Saving certificate offers tax exemption where the minimum requirement is Rs. 100 to be invested and has a lock in period of 5 years or 10 years. One can claim the National Saving certificate from the post office.
  • Life Insurance Premiums: Different insurances cover exists offering different tax saving options.
  • National Pension System (NPS): You can claim the deduction of the National Pension System (NPS) under Section 80CCD up to Rs 1.5 lakh. This deduction is offered under other than the deduction of Rs. 50,000 under Section 80CCD(1B).
  • Home Loan Repayment: The repayment amount of home loan is tax deductible up to the limit of Rs. 1.5 lakh.
  • Payment of tuition fees: tuition fee repayment is also tax deductible up to the limit of Rs. 1.5 lakh.
  • EPF: The employment provident fund is tax deductible up to the limit of Rs. 1.5 lakh.
  • Senior Citizens Savings Scheme: This scheme is available to people or individuals above 60 years. Though the contribution made to this scheme or SCSS are tax free up to the limit of Rs 1.5 lakh. Interest earned is 8.7 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} which is higher than the normal FD rates.
  • Sukanya Samriddhi Yojana: this scheme is especially for the girl child parents age 10 years or less. Here, parents can claim the benefit of interest of 8.5 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} provided up to the age of 18 years.

2. The National Pension System

your contribution made to the National Pension System is available for tax deduction under Section 80CCD(1B) up to Rs 50,000.

3. Health Insurance Premiums

You can claim deductions under Section 80D for payment of Health Insurance Premiums which can be claimed up to Rs 25,000 and in case of senior citizens, the limit is exceeded to Rs 50,000.

4. Charity

In case you contribute to the charity you can get a tax deduction of 50{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} of the donated amount or 10{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} of your adjusted total income.

Income tax saving in Income tax:

Under the income tax act, you can save tax under various sections of the act which are as follows:

  • Section 80C
  • Section 80CCD
  • Section 80D
  • Section 80E
  • Section 80EE
  • Section 80G
  • Section 80GG
  • Section 80TTA
  • Section 80DD
  • Section 80DDB
  • Section 80U
  • Section 80GGC

I. Section 80C:

Under Section 80C of Income tax, you can opt for tax saving options which are as:

  • Equity Linked Savings Scheme: it is similar to mutual funds having locked in a period of 3 years.
  • Senior Citizen Savings Scheme: This scheme is available to people or individuals above 60 years. Though the contribution made to this scheme or SCSS are tax free up to the limit of Rs 1.5 lakh. Interest earned is 8.7 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} which is higher than the normal FD rates.
  • National Pension System: It acts as a retirement benefit plan where you can claim 60 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} benefit of the amount collected by you at the age of 60 years and the rest 40 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} amount is utilized to purchase an annuity by which you receive a regular income in form of pension.
  • National Savings Certificates: National Saving certificate offers tax exemption where the minimum requirement is Rs. 100 to be invested and has a lock in period of 5 years or 10 years. One can claim the National Saving certificate from the post office.
  • Public Provident Fund: it offers long term investment options. The interest is compounded annually and has a lock in period of 15 years.

Term Life insurance premium: Different insurances cover exists offering different tax saving options.

Investment Returns Lock-in Period
5-Year Bank Fixed Deposit 6 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} to 7 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} 5 years
Public Provident Fund (PPF) 7 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} to 8 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} 15 years
National Savings Certificate 7 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} to 8 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} 5 years
National Pension System (NPS) 12 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} to 14 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} Till Retirement
ELSS Funds 15 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} to 18 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} 3 years

II. Section 80CCD:

Under 80CCD there are two subsections which are as:

  • Section 80CCD (1): The investment made in NPS is tax deductible under this section, for which the maximum limit is of ₹ 1.5 lakh.
  • Section 80CCD (1b): Offering additional deduction of ₹ 50,000 on investments made in NPS.

III.Section 80D:

deductions up to ₹ 1 lakh is allowed for medical insurance premiums. It is offered over and above the exemption claimed under Section 80C.

IV. Section 80E:

You can claim a deduction under this section for the education loan interest amount in your total income.

V. Section 80EE:

You can claim a deduction for home loan interest of up to ₹50,000.

VI. Section 80G:

You can claim a deduction for charity.

VII. Section 80GG:

You can claim a deduction for House Rent Allowance (HRA).

VIII. Section 80TTA:

A deduction of ₹10,000 is allowed on your total income for:

  • Savings bank account interest
  • Savings bank account with a co-operative society interest
  • Savings bank account with a post office interest.

IX. Section 80DD:

Here deductions are available for different-abled individuals.

X. Section 80DDB:

Here deductions are available for special medical diseases. Here, Section 80DDB has a list of specific diseases that qualify for the deduction.

XI. Section 80U:

People or an individual suffering from the following diseases can claim deduction under Section 80U:

  • Blindness
  • Low vision
  • Leprosy-cured
  • Hearing impairment
  • Locomotor disability
  • Mental retardation
  • Mental illness

XII. Section 80GGC:

Here deductions are available for aids made to political parties.

How to avoid tax in India:

  • You can avoid tax in India by adopting the following ways:
  • Gift some money to your major child
  • Under section 80C claim stamp duty and registration fees
  • State loss in tax return while filing a return
  • Acquire deduction for rent without HRA
  • Make use of education loan for your child in the future to save tax

Tax saving options for salaried:

For a salaried individual saving tax on salary is possible by adopting one of the investment options available and start investing as well as saving. So, the various options available on how to save tax on salary are:

  • Mutual Funds
  • Tax saving fixed deposits
  • Equity linked saving scheme
  • Post office time deposit
  • National Saving certificate
  • Provident Funds

Income tax saving tips:

For income tax savings one can use investment methods as well as various income tax saving options available to reduce the income tax burden, these involve:

  • Agriculture Income: One can do agriculture business as income from agriculture is exempted from income tax.
  • Education Loans: The education loans are also offered interest free tax. You can claim a deduction of interest paid but not on the principal amount of the loan.
  • Mutual Funds: Mutual Funds offer great returns on the invested amount and the lock-in period of the mutual funds’ investments is less compared to PPF and Equity linked saving scheme (ELSS).
  • National Saving certificate: National Saving certificate offers tax exemption where the minimum requirement is Rs. 100 to be invested and has a lock in period of 5 years or 10 years. One can claim the National Saving certificate from the post office.
  • Provident Funds: Provident Funds are eligible for tax deduction under 80C of the income tax act. Here, the funds are deposited for long term benefits to the investor.
  • Interest Income on saving account: You can claim a tax deduction of Rs. 10,000 which is not treated as taxable income of interest on saving account.
  • Insurance: Opting and purchasing insurance is also a wise tax saving plan to choose for the long run providing maturity as well as maturity amount with cover benefits.

Conclusion:

There exist various ways to save income tax. Though, all measures are there to avoid tax or lessen down the tax burden so, you need to choose the best option available according to the individual need and preference to save tax.

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