Taxable income | Income Tax Rates |
Up to ₹2.5 Lakh | Nil |
₹2.5 Lakh – ₹5 Lakh | 5% of total income exceeding ₹2.5 Lakh |
₹5 Lakh – ₹10 Lakh | 20% of total income over and above ₹5 Lakh + ₹12,500) |
Above ₹10 Lakh | 30% of the total income over and above ₹10 Lakh + ₹1,12,500) |
An additional health and education cess at 4% of the total tax payable is levied. A surcharge of 10% of the total income also has to be paid by people earning higher than ₹50 Lakh annually. Such cess rises to 15% when the income is higher than ₹1 Crore.
Even though such rates might seem overwhelming, the Central Government maintains various provisions under the Income Tax Act of 1961, to ease your annual financial burden.
You can learn comprehensive details regarding how to save income tax in India in this article, which will help you save substantially through numerous waivers and exemptions.
Additionally, if you let out the newly acquired property on rent, the entire interest component is exempt from annual income tax calculations.
Individuals purchasing a property for home construction can also benefit from section 24(b), provided the construction process is completed within five years.
If you are a first-time homeowner, you can claim an additional reduction on your annual tax liability under section 80EEA.
Total waiver of up to ₹1.5 Lakh [in addition to Section 24(B)] can be claimed, providing the stamp duty value of the property is less than ₹45 Lakh.
With rising medical costs in India, coupled with deteriorating health quality owing to multiple factors, availing of health insurance is becoming a necessity. Such insurance policies reduce the financial strain of individuals and their respective families at times of failing health conditions.
Tax benefits are extended by the government to stimulate individuals to avail such insurance policies, which allows them to get quality healthcare at premier medical institutions for zero or low additional charges.
Individuals can claim tax deductions on the portion of their annual taxable income spent towards premium payments under section 80D. Different amounts are exempted from such income tax calculations, depending upon the age of the insured, respectively
Eligibility | Deduction Under Section 80D |
Health insurance for individuals, spouse, children (below 60 years) | Up to ₹25,000 |
For individuals and parents (below 60 years) | Up to ₹50,000 (₹25,000 + ₹25,000) |
For individuals (below 60 years) and Senior Citizen parents | Up to ₹75,000 (₹25,000 + ₹50,000) |
For individuals and parents (both above 60 years) | Up to ₹1,00,000 (₹50,000 + ₹50,000) |
Investments in the capital market and government-mandated schemes can lead to wealth accumulation through higher returns, as well as tax-saving benefits.
You can learn about how to reduce income tax in India under Section 80C by investing in various instruments.
If you are willing to assume the risk factor, you can choose to opt for investment tools of the stock market, such as ELSS (Equity Linked Savings Scheme).
This tool comes in with a three-year lock-in period, and total investments are eligible for tax waivers of up to ₹1.5 Lakh.
Also, if total capital gains are below ₹1 lakh, no tax has to be paid on the profits realised.
You can also choose to invest in 5-year fixed deposits to enjoy such tax exemption benefits, without assuming any risk.
All investments amounting up to ₹1.5 Lakh can be claimed for tax waiver under Section 80C as well.
Numerous government-mandated schemes offer high returns on total investments along with tax waivers. Individuals can claim up to ₹1.5 Lakh spent on such investments as tax waivers on total annual income, under Section 80C of the Income Tax Act.
Tax exemptions can be availed by investing in the following tools:
Life insurance policies enjoy tax waivers on both premium payments and the amount disbursed on maturity, respectively.
Income Tax Act contains provisions under Section 80C for premium payments, and Section 10(10D) for the sum assured received on maturity or premature demise of the insured, whichever is earlier.
Nonetheless, the tax benefits of up to ₹1.5 Lakh spent on the annual premium can be claimed under Section 80C, provided it is less than 10% of the total sum assured, if the policy is taken after 1st April 2012.
In case the policy was availed before 1st April 2012, claims under Section 80C can be made if the total premium payments do not exceed 20% of the sum assured.
Sum assured realised on such life insurance policies is also exempt from any tax calculations under Section 10(10D), provided it conforms to the above-stated rules.
Purchase or renewal of life insurance cover, along with annuity payments on such policies through yearly salary is eligible for tax waivers of up to ₹1.5 Lakh under Section 80CCC as well.
Under section 80CCD(1), only certain pension funds under section 23AAB are eligible for waivers of up to ₹1.5 Lakh.
Also, if individuals decide upon investing in Unit Linked Insurance Plans (ULIP), the insurance section enjoys tax waivers, as stated above.
The portion of investment channelled to the stock market also does not attract any long-term capital gains (LTCG) tax.
However, ULIPs come with a minimum lock-in period of five years, prior to which, no money can be withdrawn from the scheme.
Tax exemptions under House rent allowance (HRA) are granted under Section 10(13A). Your salary break-up must include an HRA component to avail compensation against the same.
However, the total tax exemption on rent paid is calculated as the minimum value of three components, stated as:
1.) Annual HRA received.
· 2.) 50% of the yearly salary if the individual is residing in a metro city (40% in the case of non-metro cities).
· 3.) Total annual rent – 10% of the basic salary.
In case your monthly income does not include the HRA component, you can claim tax benefits on yearly rental expenses under Section 80GG. The total deductions on income tax are calculated against the minimum value of the following conditions –
· 1.) Rent payment of up to ₹5,000 per month.
· 2.) 25% of the gross total income.
· 3.) Total rent minus 10% of basic salary
Thus, you can learn about how to save tax in India on salary through house rent allowance by keeping in mind the above-stated points.
· Donations made to specific organisations in cash are eligible for tax waiver amounting to ₹2,000 under Section 80G of the income tax act. Wire and bank transfers, on the other hand, enjoy complete or partial tax exemptions, respectively.
If you are donating to an organisation facilitating scientific research or rural development, you are eligible to enjoy deductions under Section 80GGA.
Partial waivers in case of cash donations are granted, while transfers made through cheque or draft enjoy complete tax waiver.
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All donations made to political parties or contributions to electoral trusts are eligible for tax waivers, under Section 80GGC of the Act of 1961.
The entire amount donated to your preferred political party is exempted from any income tax calculations, provided the organisation is registered under Section 29A of the Representation of People Act of 1951.
Such donations have to be made through wired or bank transfers themselves, cash deposits are not allowed.
All these above methods will give an inclusive idea about how to save tax in India. Apart from this, several other pointers should be kept in mind while looking for tax saving methods, such as:
· 1.) Under Section 80E, you can forego any tax payment on the interest component of education loans. However, such benefits are only applicable for the first eight years of loan repayment.
· 2.) Expenditure incurred by individuals for medical treatment is exempted from any tax calculations under Section 80DDB. Medical bills of up to ₹40,000 for treatment of specific diseases can be submitted to receive tax waivers. Senior and super senior citizens get extended benefits amounting to ₹1 Lakh. Nonetheless, treatment charges only cover neurological diseases, malignant cancer, AIDS, renal failure, or haematological diseases.
· 3.) If you host a dependent family member who has a permanent disability, you can claim a tax exemption on all expenses borne for funding the livelihood of that person under Section 80DD. Similarly, tax exemption can be claimed for disabled members of a HUF.
· 4.) Up to ₹75,000 can be claimed to finance the expenses of individuals having 40% or higher disability, while the exempted amount goes up to ₹1,25,000 for people who suffer from 80% or higher disability.
· 5.) Proper documents have to be submitted for medical treatment costs, as well as proof of disability, as explained in Section 2(i) of the Persons of Disabilities Act of 1955.
· 6.) If you are disabled, you can avail of tax waivers of the same accord under Section 80U respectively.
All these points will substantially reduce your total taxable income for a stipulated financial year, as well as help you know more about the various government-mandated provisions. Make sure you submit the income tax return form and Form 16 provided by your employer to get subsequent proceeds.
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