Income tax in India is imposed on pensions, interests and dividends. Personal Income Tax rate in India averaged 32.39% from 2004 until 2020. It reached an all-time high of 35.88% in 2018. The Central Board of Direct Taxes reported that approximately 1.46 crore people The good news is that there are multiple tax saving schemes in the country where you can save huge chunks through sections 80C, 80CCC and 80CCD. The Income Tax Act allows citizens to save taxes through deductions that can be claimed at the time of tax return.
It is crucial to make the most of tax exemptions, benefits and deductions as per the applicable income tax slab. This can help minimise your overall liability and boost your earnings. Below are a few simple instruments to help save taxes on your salary.
1. Life Insurance
Premiums paid towards a life insurance plan are eligible for tax benefits. This includes various types like ULIPs, term insurance and endowment policies. It can be claimed for any product purchased for self, spouse or children. You can request a deduction of ₹1,50,000 under Section 80C of the Income Tax Act, 1961. Further, as per section 10 (10D), the maturity benefits of life insurance policies along with any bonuses received are tax-exempted. But the premium should not exceed 10% of the sum assured.
2. Savings Account
Putting your money in a savings account is one of the easiest tax savings plans under Section 80TTA. The interest is tax-free for up to ₹10,000 per year. The limit extends to ₹50,000 for senior citizens under Section 80TTB. It brings you both the features of safety and investment for varying goals, expectations and terms with tax benefits.
3. Public Provident Funds (PPF)
PPF is an investment vehicle that falls under the Exempt-Exempt-Exempt (EEE) category. This means it provides deductions of up to ₹1, 50,000 under Section 80C of the Income Tax Act, 1961. The interest accrued and maturity are tax-free due to the triple tax exemption status. This makes it one of the most popular small savings schemes.
4. Health Insurance
Policyholders may enjoy a deduction of up to ₹25,000 for health premiums under Section 80D of the Income Tax Act, 1961. Different amounts are exempted depending on the age of the insured and the type of insurance policy. If the age of the individual is above 60 years, the deduction limit increases to ₹50,000. Tax benefits of up to ₹5,000 can also be received for preventive health check yearly.
5. Home Loan
A home loan comprises two basic components: interest and principal. This principal amount is eligible for tax deduction under Section 80C of the Income Tax Act, 1961. You as a borrower can claim up to ₹1, 50,000. The interest payable is also tax-deductible under Section 24 of the Income Tax Act up to ₹2, 00,000 per annum. In some cases, there is no maximum limit on the deduction that can be claimed on the amount spent on the interest.
The right tax savings plan can help you save a significant amount as per the tax laws in the country. However, know that they are subject to change. So, keep a check on the Union Budget announcements to know the standard deductions available for citizens.