The beginner’s guide to income tax sections & how to save taxes
By Adhil Shetty, CEO BankBazaar.com BankBazaar.com
Where there is income, taxes may need to be paid. And where taxes need to be paid, taxes can also be legally avoided. The Income Tax Act is a voluminous law with several sections that outline how taxes can be legally avoided. You can avail tax deductions through certain eligible investments, insurance policies, donations, or expenditure.
So which are these tax-saving sections of the Income Tax Act? Here’s a primer for beginners.
SECTION 80C – THE MOST POPULAR TAX-SAVING SECTION
This section provides the most-availed tax deductions. Under it, you can claim a deduction of up to Rs. 1.5 lakh in a financial year. You can do this in many ways.
One – through qualified investments such as Public Provident Fund, Senior Citizens Savings Scheme, Sukanya Samriddhi Yojna, Equity-Linked Savings Schemes, National Savings Certificate, pension plans, five-year fixed deposit, and any other investment schemes notified by the government.
Two – through the purchase of life insurance in various forms such as term plans, endowment plans, cashback plans, or ULIPs. Three – through qualified expenditure such as repayment of home loan principal, or children’s school tuition fees.
SECTION 80D – FOR PROTECTING YOUR HEALTH
Section 80D allows you several ways to save tax on healthcare-related spends. If you’re under the age of 60, you can claim deductions up to Rs. 25,000 for the premiums you pay towards your health insurance policy bought for self, spouse and dependent children. Furthermore, you can also claim deductions for premiums of health policies for your dependent parents up to Rs. 25,000. If you or your dependent parents are over 60, you can claim deductions of Rs. 50,000 each.
SECTION 80E – FOR INTEREST ON EDUCATION LOAN
If you’re repaying an education loan, you can claim deductions for interest paid on it under this section. This benefit is available for eight years from the date of the commencement of the repayment. The loan may be taken by the student themselves, or by their parents or spouse, from a bank or regulated financial institution.
SECTION 24
Homeowners can claim various deductions under Section 24. For home loan interest paid, deductions up to Rs. 2 lakh can be availed. Within this limit of Rs. 2 lakh, you could also claim deductions up to Rs. 30,000 for interest on a home improvement loan.
SECTION 80G
If you’re the charitable type, you could claim tax deductions by donations to eligible charities. Depending on the charity you’re donating to, you will earn deductions equal to 50% or 100% of the donation with no limit or a limit up to 10% of your gross income. For example, donations to the Prime Minister’s National Relief Fund earn 100% deductions without limit, while donations to the Prime Minister’s Drought Relief Fund earn 50% deduction without qualifying limit. Similarly, donations to government agencies promoting family planning earn 100% deduction up to 10% of your gross income, and donations to corporations working for minorities can earn 50% deduction up to 10% of your gross income.
There are several other sections in the Income Tax Act that you can look up in order to avail any deductions you’re eligible for. Do consult a tax advisor when in doubt, and use an income tax calculator to assess your liabilities. Tax saving is a critical aspect of wealth creation. A rupee saved is a rupee earned.
Disclaimer: The writer is CEO, BankBazaar.com. The liability for the article solely rests with the author/brand. The content has not been created or verified by India TV channel and IndiaTVNews.com.
