Are you a first-time tax payer? You might be getting hassled by the process of TDS deduction and might be thinking about getting your tax burden reduced. However, we all know that tax evasion is a crime. So, there’s no way to avoid it. Instead try exploring the various options for exemptions to help you save taxes. In fact, if your annual income is within Rs 10 lakh, there are tax-saving investments which can reduce your tax outgo to even zero.
Invest under Section 80C and save as much
Investments under Section 80C qualify for a deduction up to a maximum of Rs 1.5 lakh a year. The premiums you pay for life insurance plans, repayment of principal component of home loans, investments in PPF, NSC, ELSS, NPS, tax-saver FDs, 5-year post office time deposits, senior citizen savings schemes, Sukanya Samriddhi Scheme are some of the investments which qualify for this deduction.
Remember that you only get a maximum deduction of Rs 1.5 lakh a year on the combined investments which qualify for Section 80C. If you have just started earning and don’t have too much to spare for investments, calculate how much investment would nullify your tax, and only then decide your investment amount. Additionally, if you already have PPF cut by your employer, try investing in high return schemes like ELSS as you can plan your retirement plans after a few years.
Avail Health Insurance
The premiums you pay on health insurance plans for yourself/ family/ parents qualify for deductions under Section 80D. You get a maximum deduction of up to Rs 25,000 a year on health insurance premiums paid for yourself/ spouse and kids. If your parents are senior citizens, the maximum deduction on health insurance premiums is Rs 30,000 a year.
Assuming that most first-time tax payers are single, go for a policy that will cover your and your parent’s medical costs, and check for cashless facility as your initial salary may not be able to handle the burden of a medical emergency. In case your employer has a group medical insurance in your name, opt for a policy that doesn’t require you to shell out too much and try to go for monthly or quarterly EMIs to manage your finances better. In case it’s last minute, then you can pay the annual premium at once to let the entire amount qualify to tax exemption.
Investing in NPS gives additional tax benefits
You get an additional tax exemption if you invest in the National Pension Scheme, popularly called NPS. After enjoying a maximum deduction up to Rs 1.5 lakh a year under Section 80C, you also get an exemption over and above this under Section 80CCD(1B) up to Rs 50,000 a year. Once again don’t hastily invest and calculate how much investments will give you the maximum benefit.
You enjoy a rebate under Section 87A
Finance Minister Arun Jaitley has given you a tax rebate under Section 87A for the Financial Year 2017-18. You get a maximum rebate of Rs 2,500 a year under Section 87A. However, you get this rebate only if your total income, less all deductions under Section 80, is equal to or less than Rs 3,50,000.
Home Loan Interest Repayment
It’s rare that first time tax-payers will take a house loan in their first year. But if your income is in the higher brackets, then it’s a wise option to invest in property from the very beginning. But a higher pay package means more taxes, and tax benefits on the interest repayments made on a home loan are one of the best ways to save TDS cuts. Your interest repayments on the home loan are eligible for tax deduction under Section 24, up to a maximum of Rs 2 lakh a year.
Also, first time home buyers enjoy an additional tax deduction on interest repayments on home loan up to a maximum of Rs 50,000 a year under Section 80EE, subject to certain conditions. Thus, you get a total deduction up to Rs 2.5 lakh a year on home loan interest repayments, if you are a first time home buyer.
Tax benefits on donations
There are more ways to save tax if you are interested in charitable activities. You can get a tax deduction under Section 80G on donations made to specific relief funds and charitable institutions. You can claim either 50% or even 100% on the amount you donate to specific relief funds, with or without any upper limit.
Income Tax Slabs (Upto Rs 10 lakh) For Individuals Less Than 60 Years for FY 2017-18:
Cess: 3% on total of income tax
Example: Calculated income tax on a salary of Rs 8 lakh with tax deductions and exemptions to pay zero tax:
The above is just one method of paying zero or minimum tax. You may contribute to specific tax relief funds or there are more tax exemptions and deductions you can avail. Just make sure you invest in schemes that give your needs the maximum benefit.
(Writer is CEO at Bankbazaar.com)