If you’re making money, it might be through a job or a small company. Your tax burden rises in tandem with your earnings. Instead of evading taxes, savvy taxpayers may find ways to lower their tax burden. Please read this post if you are seeking strategies to save money on income tax in India in 2021. Let’s have a look at some of the options for reducing your taxable income in India.
Know what is Income Tax?
Individuals and businesses are subject to income tax, which is a kind of tax levied by the government directly on their earnings. A person’s income is computed at a certain percentage. You may reduce the amount of tax you pay by claiming specific deductions and costs from your overall income.
How to Save Money on Income Tax in India in 2022?
In India, there are a few methods to save money on taxes.
- a) By submitting receipts as proof of expenses, and
- b) By investing in tax-saving instruments under section 80C of the Income Tax Act
Let’s take a closer look at each of these topics.
In 2022, there are 9 expenses that might help you save money on income taxes.
This is a legitimate cost; however, it may be deducted from total income and so lower the amount of income tax owed.
1) Tuition Fees –
We spend a lot of money on our children’s education. Tax regulations allow taxpayers to deduct up to Rs 1.5 lakh in tuition fees paid for their children’s education under section 80C of the Income Tax Act from their taxable income.
2) Repayment of Home Loan –
Tax savings may be gained if you’ve taken out a house loan and are repaying its equated monthly installments. You get the benefit of both repayments of principal and interest components through EMI. If you’re buying your first home, the tax savings are considerably greater. Tax deductions for interest paid on a home loan under section 24 and for principal repayment under section 80C are both available up to a combined maximum of Rs 1.5 lakhs.
3) Repayment of student education loan –
There are numerous situations when the escalating costs of education require individuals to take out a loan to pay for their education. Tax advantages are also included in the monthly payments of such a loan. Section 80E of the Income Tax Act allows taxpayers to deduct their interest on student loans.
4) Rent may be deducted from income –
It doesn’t matter whether you’re receiving HRA or not, you may still claim tax advantages under section 80GG of the Income Tax Act.
5) Health insurance premiums paid –
Medical insurance has become a need for almost everyone due to the ever-increasing risks of life. Under section 80D of the Income Tax Act, you may deduct the cost of health insurance and regular check-ups. Do not pay your insurance payment in cash. Up to Rs 25,000 per year in medical premiums paid for you and your spouse might be claimed (this amount is Rs 50,000 if you and your spouse are above 60 years). You may collect up to Rs 25,000 in medical insurance premiums paid on behalf of your parents, and an additional Rs 30,000 if they are senior citizens.
6) Health care costs for a dependent who is disabled –
You may claim a tax deduction under Section 80DD if you pay for the medical care of a disabled family member. With this deduction, you’ll be able to provide even better care for your disabled family member.
7) Treatment of specific diseases –
The IT Act provides some tax relief for the treatment of certain conditions, such as cancer and AIDS, which are covered under the Act.
8) Donations for charity –
Making charitable gifts may potentially save you money in the form of a lower income tax burden. Donations fall beyond the scope of the Tax Act in several ways. Such tax exemptions are covered u/s 80G of the IT Act.
9) Donations for scientific research or rural development -
Under Section 80GGA of the Income Tax Act, charity donations to scientific research and rural development are deductible.
There are 9 other Ways to Save Income Tax by investing in 80C investment options.
Section 80C of the Income Tax Act provides tax deductions for several investments.
10) ELSS Tax Saving Mutual Funds:
You may save up to Rs 1.5 lakh in income tax by investing in top tax saving ELSS mutual funds under section 80C. With a time horizon of 8-10 years, you may expect annualized returns of 12-15% from ELSS Mutual Funds. There is only a three-year lock-in period for ELSS mutual funds. (HyperLink)
11) NSC or FD with the Post Office for five years –
All you need is an Indian Post Office to get this FD (NSC). It has a five-year lock-in term. Aside from the tax benefits, this investment offers significant returns. In 2021, the Post Office 5 Year FD yields 6.7% and the National Savings Certificate yields 6.8%.
12) NPS – National Pensions System –
To participate in NPS, you must open an account with one of the specific banks. A variety of outcomes are possible, depending on the selections made. The investment’s pension income is taxable, but they are also deductible under Section 80C.
13) EPF investment (Employee Provident Fund) –
Mandatory EPF contributions amount to 12% of your gross monthly income. You may claim a tax deduction for the money you put into the EPF account. In addition to the earnings, this investment choice is a good tax-saving strategy. If you’ve served for five years in the military, you won’t owe taxes on your interest or maturity payment. The EPF interest rate now stands at 8.5% for 2021-22
14) VPF (Voluntary Provident Fund) –
In addition to the statutory EPF, this account may become VPF if you want to invest extra. You may contribute up to 100% of your basic salary, as well as your DA, to your VPF. This investment along with interest is also tax-exempt. As with the EPF, interest is compounded quarterly. It is possible to receive larger profits from VPF than through EPF, which is a secure investment choice.
15) PPF (Public Provident Fund) –
In terms of long-term investments, the PPF is a great choice. Partial withdrawals from a PPF account may be made after a certain period provided certain requirements are met. Contributions are tax-deductible under section 80C, much like EPF, and interest and maturity payments are exempt from income taxes. The current PPF interest rate is 7.1%.
16) Sukanya Samriddhi Yojana –
Only parents with a female kid are eligible for this scheme. It is one of the best tax-saving investment options where the rate of return is greater than PF and PPF. The current interest rate for Sukanya Samriddhi is 7.6%.
17) Life Insurance Premium –
The premiums you’ve paid for life insurance may be deducted from your taxable income. Term insurance, which provides low-cost life insurance coverage, is an important initial step in financial planning.
18) Pension funds –
It’s never too early to start thinking about your retirement. Investment in pension plans is one of the finest strategies to amass retirement money. Your taxable income might be reduced if your contributions to certain pension schemes qualify. The provisions for the same are covered u/s 80C, 80CCC, 80CCD(1), 80CCD(1B), and 80 CCD(2). You should choose a pension plan with modest allocation costs.
There are 4 Ways, Salaried Employees Can Save Income Tax in 2021-22
There are also plenty of other options that are available to salaried workers who want to reduce their taxable income.
19) A deduction for HRA (House Rent Allowance) –
HRA (House Rent Allowance) may be claimed if you reside in a leased house.
20) LTA (Leave Travel Allowance) Deduction –
LTA can be claimed twice in a 4-year block. Tax deductions may be claimed for travel expenses you and your family incurred. LTA is the subject of many inquiries, and they may be answered here.
21) Meal coupons –
certain employers offer their staff vouchers for meals. They are not taxable up to Rs. 2600 per month.
22) Leased car –
If you are taking advantage of your employer’s automobile leasing program, this is a good option. You may not be required to buy a car and can save tax on car EMI.
To summarise, there are several methods available for lowering your taxable income and, hence, your overall tax burden. Take the time to carefully review your income, expenses, and investment portfolio to get the best possible financial planning.