Every year taxpayers are required to file their income tax return (ITR). The income tax return includes the information of your annual income along with the payable tax which you need to file. Under different sections of the Income Tax Act 1961, some tax rebates and exemptions have been allowed by the Government of India.
The major purpose for the same is to encourage people to invest in a bigger way. Distinct ways are there which you can follow for reducing the tax outgo.
Some of the tax-saving techniques are:
a) Investing in tax-saving instruments
Under section 80C of the Income Tax Act, the Government of India permits some tax deductions upon the invested amount for some instruments. You can claim tax deductions up to a maximum of Rs 1.5 lakh for the investments made in these instruments.
Below are some tax-saving instruments:
- Public Provident Fund (PPF)
- Employees’ Provident Fund (EPF)
- Equity Linked Savings Scheme (ELSS)
- National Pension System (NPS)
- Sukanya Samriddhi Yojana (SSY)
- Senior Citizen Savings Scheme (SCSS)
- Fixed Deposits (FDs) of 5 years or more
You can not only save tax by investing in the above-mentioned schemes, but you can also build your wealth in the long term.
b) Choose the specific tax regime
In the present times, there are two tax regimes available for Indian citizens. During ITR filing you can choose either of them. But for maximum tax saving, it is important to select the suitable tax regime.
The new tax regime proposes lower tax rates. However, it does not permit tax deductions. Hence if you are seeking tax deductions under section 80C of the Income Tax Act, then you must go for the old tax regime. If not, you can choose the new tax regime to reduce your income tax liability.
If you are confused about the new and old tax regimes, then you can take assistance from the online income tax calculator.
c) Purchase health insurance for yourself and your loved ones
Buying health insurance policies for yourself, including your family, will also help you save tax. Under section 80D of the Income Tax Act, a taxpayer can avail of a deduction of up to Rs 25,000 for paying the health insurance premiums for themselves, their spouses, and dependent children.
Under the same section, a senior citizen as an assessee can claim a tax deduction up to Rs 50,000. If you would buy health insurance for your parents, who are over 60 years in age, then you can claim deduction of up to Rs 50,000.
d) Claim tax benefits on home loan
If you take a home loan from any bank or non-banking financial institution, then from your taxable income you are eligible to claim the deductions with respect to your loan’s interest and principal amount. This law permits maximum deduction of upto Rs 2 lakh under section 24 with respect to the home loan interest and Rs 1.5 lakh under section 80C of the Income Tax Act with respect to the home loan principal.
e) ITR filing within specified timelines
Everyone needs to file the income tax return before 31st July every year or the date specified by the Income Tax Department. A penalty will be levied if you miss or fail to file the ITR within the specified timelines.
It may be noted that many people resort to panic investing in tax-saving schemes at the end of the fiscal year in a bid to save tax. But this leads to the failure of the main objective of permitting such deductions to motivate people for investing in the future.
Hence the start of every fiscal year may be the best time to make tax-saving investments. With this, you will be able to invest regularly in multiple tax-saving schemes to save taxes and generate wealth. You must learn about all the tax-saving investment options and should invest only in those instruments which are suitable for you.
(By CA Amit Gupta, MD, SAG Infotech)