Best ways to Save Income Tax Legally in India

This is time when your finance and human resources guys hounding you for the bills/evidences against the exemptions you have opted under different sections of Income tax laws and people are on the lookout for opportunities to save more on income tax payout.

As a HR practitioner for almost 2 decades, I am serving both side of tax ecosystems  and today, I am going to talk about few offbeat schemes to optimize your tax outgo. Most of us typically don’t move beyond tax-saving instruments listed under section 80C of the Income Tax Act. The section 80C allows deduction for the investment made in PPF , EPF, LIC premium , Equity-linked saving scheme, principal amount payment towards home loan,Sukanya smriddhi yojana (SSY) , National saving certificate (NSC) , Senior citizen savings scheme (SCSS), ULIP, tax saving FD for 5 years ,etc. The above mentioned investments/deductions are all subject to a cap of Rs 1.5 lakh. In other words, they are either/or investments and making one type of investment will reduce room for another. Following are the few best deductions/Investments  you can chose to further optimise your tax payout in addition to 80C.

Contribute to the National Pension System

This is my favourite scheme as it allows you virtually uncapped savings as most of other sections have upper capping and wont let you take benefit of contributing to those schemes beyond certain limit. This deduction allows you exemption under Section 80CCD(1B) up to Rs 50,000 and 10% of salary with no monetary limit under section 80CCD(2) , however this is only available for contributions to Tier 1  NPS account holders . You should also be aware of the fact that NPS allows you to invest in equity and debt pension funds and build a retirement corpus and You can withdraw it at age 60. Contributing to 80CCD(2) is outside of 80C and 80CCD(1B) limits, This gives you opportunity to save beyond Rs 2 lac limit and expand yours non-exempt income horizon.

Take HRA exemption/ Get a deduction on your rent

You can claim tax deduction on your House Rent Allowance (HRA) if your structure has HRA head and majority of firms in India has this as standard salary head. Beauty of this exemption like section 80ccd2 is, that there is no upper limit for this but there are following rules that cap the maximum HRA deduction.

•  Actual HRA received by the employee
• 40 % of salary for non-metro city or 50 % of salary if the rented property is in Metro city like Mumbai, Delhi, Kolkata, Chennai )
• Actual rent paid less than 10% of salary.

 If you do not get HRA but pay rent, you can claim a deduction under Section 80GG up to Rs 60,000 per annum.

Get yourself  Health Insurance

I strongly recommend you to get and health cover for our self and family even if your employers has provided you health insurance. Having a cover on your own name gives you additional advantage of claiming premium exemption under Indian tax laws plus coverage over and above what your corporate policy will pay. Also, your corporate policy will lapse immediately you leave current employer but your individual policy will keep going and with time, it will give you benefits like coverage of existing diseases and add ONs etc. From tax saving perspective ,A deduction up to Rs 25,000 is available for health insurance premiums under Section 80D. For senior citizens, this limit is increased to Rs 50,000. A person contributing health insurance for thyself, and senior citizen parents can avail of the combined deduction up to Rs 75,000 per annum

 Your savings account saves you tax too

This is probably the easiest deduction under the Income Tax Act that individuals can claim. Interest earned on a savings account is exempt for taxation purposes for a limit of Rs. 10000 per year under Section 80TTA. This amount is cumulative of all saving bank accounts Interest on savings accounts per year under Section 80TTA. This limit is Rs 50,000 for senior citizens for both FD and savings account interest under Section 80TTB.

Following payments and Expenses are Exempted too

• Home Loan Repayment up to Rs 1.5 lakh per annum and Tax exemption on interest section of the home loan is available under Section 24(b), valued up to ₹2 Lakh annually
• Wedding Gifts, Under Section 56(2), such gifts are non-taxable. Be it a gift, cash, or cheque, gifts received on getting married do not attract tax
• Amount received from sold shares or sold Equity Mutual Funds and amount received as dividends on shares or Equity Mutual Funds
• Income from Agriculture
• Income from Hindu Undivided family
• Interest received on the provident fund to a limit 
• Expenses to treat Disabled Dependent
• Money Spent on Donation to Charity
• Money Spent on Donation to Political Party
• Amount Received Through Inheritance, Scholarship for Education under Section 10(16)
• Income Through NRE Account Interest