Today everyone in the economy wants to save himself from paying taxes or to decrease their tax liabilities. Now to save tax paying in Indian economy the Income Tax Act grants many deductions which a person can claim at the time when he/she is filing Income Tax Return. These deductions are for all type of taxpayers whether they are individuals, HUF, Partnership etc. In this article, we will discuss some ways through which one could save tax legally.
One needs to plan for all the tax implications properly throughout the year to avail all the deductions which helps in tax saving. These deductions are allowed to be deducted from the gross total income of the person and thus reducing the taxable income. So below mentioned are some ways to save the tax legally in the Indian economy:
#1. Long Term Capital Gain from The Sale of Equity Shares
The government has exempted income tax on the gains which arise from the sale of equity shares, only if it is considered to be long term gain means it must held by a person for more than one year. This is used to encourage the public to invest in equity shares and mutual funds by the govt. If the share holding period is less than one year than the tax would be levied @ 15%. Click here for the complete details on sale of shares. https://www.alerttax.in/capital-gain-sale-of-shares-and-mutual-funds/
#2. Tax saving under Section 80C + Section 80CCC + Section 80CCD
The Indian government allows many deductions to encourage the people for saving and to make the investment in the best useful resources. This saved amount is invested in the securities which are specified in the section 80C, section 80CCC and section 80CCD. The maximum limit of deduction under these 3 sections is Rs. 1,50,000. One should plan for the investment properly so to invest in one of this or in mixture but the maximum deduction allowed for all these would be Rs. 1,50,000 only.
Below mentioned are some common instruments which are used for the purpose of investment.
- 5 Year Fixed Deposit notified by post office
- Pension Plans
- Unit linked Insurance plans
- Contribution to Employee Provident Fund
- Payment of Life Insurance Premium
- Subscription to National Savings Certificate (NSC)
- Tuition fee of children
Click here to see the complete list of instruments https://www.alerttax.in/deduction-80c/
Under section 80CCD an additional deduction apart from Rs. 1,50,000 is allowed to be claimed. This deduction is introduced to encourage the investment in National Pension Scheme.
#3. Deductions for Donations under section 80G
Under Section 80G of the Income Tax Act, a taxpayer can claim deduction if he uses to make a donation regularly for charity, social or for welfare purpose. Contribution made in National Relief Fund in also exempted. But it is pre-specified by the Finance Minister of our country, the organisations in which tax payer can make the donations but the deduction allowed to the tax payer depends only on the motive for which that donation has been made.
There are some 100% deductions i.e. 100% of the amount of donation could be claimed as deductions whereas in some cases only 50% deduction is allowed i.e. 50% of the amount of donation made.
Donations which are made through cheque or cash are allowed to be deducted whereas donations which are made in kind are not allowed to be deducted.
The donations which are made through cash can be claimed as deduction up to Rs 10,000 only, but for claiming deduction of more than Rs 10,000 the tax payer need to make donations in electronic mode.
#4. Tax Saving under Section 80D, Section 80DD, Section 80DDB
The expenditure which is done on the health insurance by the individual for insuring his health or his relatives, then for this also Income Tax Act allows for deductions to save tax. Below mentioned are some Insurance Policies which gives deduction leading to tax saving under many different sections.
- Section 80D: Payment of Medical Insurance Premium of Self or Spouse or for dependent children and expenditure on preventive health check-up
- Section 80DD: Medical Treatment of Disabled Dependants
- Section 80DDB: Treatment of Specified Diseases
#5. Long Term Capital Gains arising from sale of any asset
On selling any of the Long-Term Capital Asset, if a taxpayer gets any gain then he/she can claim an exemption from paying such Capital Gain Tax only if he invests the amount of gain which had occurred from the sale of asset in specified instruments. The thing which is kept for more than three years is only considered to be a Long-Term Capital Asset. This scheme is beneficial for saving income tax.
#6. Tax saving through repayment of Home Loan
Under section 80C, if a person had taken Home Loan he is able to claim the deduction for the paying back the principal amount and moreover, the deduction under section 24 is also allowed to be claimed by the taxpayer for the interest paid on home loan. The maximum limit to claim for deduction of payment of interest on home loan i.e. up to Rs.2,00,000 but there is no fixed limit in some of the cases.
Note: This above-mentioned paragraph indicates that how a home loan can save the tax so, it is also advisable to claim these deductions because deduction for the paying back the home loan is allowed to be claimed under three different sections are Section 80EE, 80C and 24.
#7. Investment under Section 80CCG: RGESS
Under the Rajiv Gandhi Equity Saving Scheme, a taxpayer is allowed an additional deduction of investing in Shares of specified companies and Mutual Funds. This is applicable under section 80CCG and only to those taxpayers whose annual income is less than Rs.12 Lakhs p.a.
As everything has some pros and cons same as this scheme also has. This scheme is very complicated and the deduction under this scheme is available to only first time investors i.e. the persons those who had done earlier invested in Shares/Mutual Funds etc are not allowed to claim this deductions.
#8. Tax saving for the Education Loan u/s 80E
Under section 80E, a taxpayer can claim deduction and can save tax if he/she had taken education loan for his higher studies or for the study of his children or for his spouse or of a child for whom he is a legal guardian. The deduction is allowed for the repayment of interest amount.
Note: The deduction is not allowed for the repayment of principal amount of loan.
This deduction under section 80E is available to only individual taxpayer not to the HUF. There is also no particular limit for claiming the amount of deduction under this section.
About the Author
Arpit Goyal is pursuing CA and B.com & also working as an article assistant in Gurgaon. He has an immense interest in Taxation. He loves to use technology to spread knowledge about taxation & accounts.