Taxation is an essential part of any country’s economy. Taxes are collected by the government to fund public services such as infrastructure, education, healthcare, and defense. However, nobody likes to pay more taxes than they have to. Fortunately, there are legal ways to reduce your tax liability in India. In this blog post, we will discuss some of the most effective ways to save tax in India.
1. Invest in tax-saving instruments
The Indian government offers various tax-saving instruments to encourage people to invest and save money. Some of the most popular tax-saving investments are Public Provident Fund (PPF), National Pension Scheme (NPS), and Equity-Linked Savings Scheme (ELSS). Investments in these instruments are deductible under Section 80C of the Income Tax Act, 1961. The maximum deduction allowed under Section 80C is Rs. 1.5 lakhs per year.
2. Utilize health insurance benefits
Paying for medical expenses can be expensive, but having health insurance can help reduce the burden. Under Section 80D of the Income Tax Act, you can claim a tax deduction of up to Rs. 25,000 for the premium paid for health insurance policies for yourself, your spouse, and your dependent children. Additionally, you can claim an additional deduction of up to Rs. 25,000 for the premium paid for health insurance policies for your parents.
3. Claim deductions on home loans
If you have taken a home loan, you can claim tax deductions on both the principal and interest repayments. Under Section 80C, you can claim a deduction of up to Rs. 1.5 lakhs for the principal repayments made towards your home loan. Additionally, under Section 24, you can claim a deduction of up to Rs. 2 lakhs for the interest paid on your home loan.
4. Utilize deductions for donations
If you donate to a registered charitable organization, you can claim a tax deduction under Section 80G of the Income Tax Act. The amount of deduction depends on the type of charity and the amount donated. For example, donations to the Prime Minister’s National Relief Fund are eligible for a 100% tax deduction, while donations to other charities may be eligible for a deduction of up to 50% or 100%.
5. Opt for the new tax regime
The government introduced a new tax regime in 2020, which allows taxpayers to opt for a lower tax rate but without deductions. Under this regime, taxpayers do not need to claim deductions under Section 80C, 80D, or any other sections of the Income Tax Act. However, the tax rates are lower for those who choose the new regime. You should evaluate your tax liability under both regimes to determine which one is more beneficial for you.
In conclusion, there are several ways to save tax in India. By investing in tax-saving instruments, utilizing health insurance benefits, claiming deductions on home loans and donations, and choosing the right tax regime, you can reduce your tax liability and save money. It’s important to remember that tax planning is a continuous process, and you should review your investments and expenses regularly to ensure that you are maximizing your tax benefits.
