Wondering about what’s the best way to save tax in India?
Let’s talk a bit about income tax first. Income tax is the unfortunate reality of income. Once we start earning, we’re on cloud nine, devising innumerable ways of spending, and sometimes (rarely though) ways of saving as well. We also realize how precious our hard toiled money is in times of parting. If paying taxes were a choice, most of us wouldn’t want to pay them but, ignoring to pay income tax should not be thought of by any citizen. Instead, as responsible citizens we can try to learn what’s the best way to save tax in India.
We should pay income tax because it is the major source of revenue for our government. You should take pride in it because you’re one of the 1.5% of Indians who can afford to pay taxes. While the government asks you to pay tax, it also allows you to legally save on tax. Tax saving is a reality if executed legally.
So, now that you have decided to find out the best way to save tax in India, let’s start with the income tax slab.
In order to know the best way to save tax in India, the very first step is knowing which tax slab you fall under. To give you an example, suppose you earn Rs.8 lakhs per annum. You must then try to understand what income tax slab you fall under. To determine a tax slab, you should consider these steps:
- Step 1: Subtract the exemptions of HRA, conveyance allowance and medical expenses from your gross salary.
- Step 2: Add the extra income of interest, commission, and bonuses, if any.
- Step 3: Add Rental Income, if any.
- Step 4: Add Capital Gains, if any. (eg. sale of house, car, etc.)
- Step 5: Subtract the deductions under section 80C, Section 80D and other deductions under Chapter VI.
- Step 6: The resultant income is your net taxable income. You can now apply the government income tax slab on this final income.
Best way to save tax in India – Know about income tax slabs
- Each individual in the country gets the benefit of tax-free income, irrespective of total income. Out of one’s total income, Rs.2.5 lakhs is tax-free.
- Post deduction of tax-free income, the income between Rs.2.5 lakhs and Rs.5 lakhs is subject to a 5% income tax.
- Income between Rs.5 lakhs and Rs.10 lakhs falls under the 20% tax bracket.
- Any remaining income over and above Rs.10 lakhs would be subjected to a 30% income tax.
Now, for saving your Income Tax, make a note of these income tax deductions!
There are two sides of the coin before you discover the best way to save tax in India. Where one side the government wants you to fulfill your moral responsibilities, on the other side it shows leniency too. In a nutshell, the sections are as per the Income Tax Act:-
- Section 80C: Allows you to save income tax through a lot of options like PPF, FD, ELSS, etc. Up to Rs 1.5L. This section allows benefits on investments up to Rs 50,000 in the NPS Tier 1 account.
- Section 80CCC: Gives you lease on pension products.
- Section 80CCD: This comes under the central government employee central scheme. Over & above the limit of Rs.1.5 lakhs under Section 80C, this section allows benefits on investments up to Rs.50,000 in the NPSTier 1 account.
- Section 80D/80DD/80DDB: Allows medical deduction for family or parents or medical issues. If you have parents who are aged, you might have taken medical insurance for them. You can claim such medical insurance payment up to Rs.30,000 of uninsured parents. You should declare such amount at the beginning of the financial year so that your monthly net take-home is reflected correctly.
- Section 80U: Exemptions for physically disabled.
- Section 80E: An education loan taken for yourself, spouse or children allows for exemption on tax on the interest paid upon such loan. There is no upper limit on the amount of deduction. However, the loan must have been secured from a financial institution or approved charitable institution for a full time higher education.
- Section 24: Exemptions due to various loans, precisely home loans, and education loans. The interest paid on housing loan qualifies for tax benefit under this section. Interest up to Rs.2 lakhs per financial year is allowed as deduction. Interest up to Rs.30,000 is allowed on home improvement loans as well.
- Section 80G/80GGA/80GGC: This allows you to not pay tax on the money that you’re donating to various fields.
- Section 80TTA: Interest income up to Rs.10,000 per year from a savings account is allowed as a deduction from taxable income. Interest from fixed deposits & term deposits, however, does not qualify.
In-depth knowledge about the sections above, can also help you in starting out on your journey to determine what’s the best way to save tax in India. Let’s explore it more below.
Tax Saving Investment Schemes by Government
- Employee Provident Fund: In this, you need to contribute 12% of your Basic pay plus DA to EPF, the interest earned here is tax-free. It is convenient to invest an amount directly deducted from salary. Although, the money is fixed till your retirement.
- Public Provident Fund: This account has a compulsory locking of 15 years. It can be opened at post offices and nationalized banks. The interest earned is tax-free and cannot be attached by court orders. It’s backed by the central government.
- National Saving Certificate (NSC): It is a tax-saving fixed deposit from India Post. The interest is market-linked and changes every year.
The best way to save tax in India is to be mindful and smart about all the tax saving schemes and instruments. Other than the above mentioned schemes and projects, there are also multiple other projects that have been carried out under the government for the upliftment and support of the needy. Reading about all of them can give you the basic idea of the best way to save tax in India.
Tax-free Tuition Fees and Education/Home Loans
- The expenses on tuition fees for a maximum of two childrenis eligible for deduction in taxes. The maximum deductible value raises as high as 1.5L per annum. Also, the educational institution must be located in India, but it may be affiliated to any foreign University.
- The entire interest(not the Principle amount) paid on education loans is entitled to a deduction from taxes. Also, the loan should be for children, spouse or self. Also, you can claim an exemption from taxes through education loans for a maximum of eight years.
- For home loans, a deduction up to Rs. 1.5 lakhs is allowed on the principal repayment. Also, certain exemptions also help you to save money and axe tax during medical issues.
This is how tuition fee and education/home loans are great options when trying to save tax. These are two of the best way to save tax in India.
Use these to increase your take-home salary
Increasing the take-home salary will in turn help you in saving tax. You will find it to be the best way to save tax in India. In the matters of tax saving, there are a few points that you should get yourself acquainted with. There are multiple parts of your salary, where some of them are fully taxable whereas some of them are partially taxable/tax-free.
When talking about the best way to save tax in India, let’s take a look at all the tax free transactions:
- Medical reimbursements up to Rs.15,000 per year.
- Conveyance Allowance up to Rs.1,600 per month.
- Other tax-saving allowances such as leave travel allowance, vehicle maintenance, house rent allowance, Uniform allowance up to Rs.24,000, are all tax-free.
- Meal coupons and telephone allowances are also exempted from tax.
Now, if your question was what’s the best way to save tax in India then this article would have certainly helped you in gaining in-depth knowledge. Also, you can check out our complete guide to understanding the components of salary slip here.
Sqrrl: Your Tax Saving Buddy – The best way to save tax in India you finally need to know.
Now that you have a lot of information on the fields where you could save your taxes, it is the right time for your income tax payment. All you have to do is look for the right platform to invest to save tax.
We’ve got the easiest way out for you and you don’t need an income tax calculator to figure it out. Download Sqrrl and make an investment in ELSS funds to save up to Rs.46,350 on income tax. All of this takes only a few minutes.
This is what you have to do in order to make use of the best way to save tax in India aka Sqrrl:
Step 1: Download Sqrrl by clicking here
Step 2: Complete the 2-minute KYC Signup Process, which is swift, secure and completely paperless!
Step 3: Save Tax with Sqrrl.
Now that you are clear about the best way to save tax in India,
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And there you go, quick and easy tax saving. Tell us if you have any other query and we’ll be more than happy to help you out! Drop a comment down below, or mail us at firstname.lastname@example.org.