Wondering how to save income tax? These tips can help you

Tax-saving season is here and most of us scurry at the last-minute to make investments and claim deductions.  Well, you no more should procrastinate as it can be difficult to take full advantage of all the deductions and benefits available. However, with a little planning and proper information, you can save a significant amount of money. Here are a few tips to take the maximum tax advantage for financial year 2022-2023.  

TIP 1 • Invest in tax-saving instruments 

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Tax-saving season is an opportunity to save money as well as plan your finances better. You can invest in these tax saving assets before March 31st to claim benefits while filing ITR. Below is a brief explanation on some popular instruments by Kamayani Aniruddh Nagar, CEO- Wealth, Bajaj Capital.  

 

●       Public Provident Fund (PPF): PPF is a long-term investment option that offers a fixed rate of interest and is eligible for tax deductions under Section 80C of the Income Tax Act. The maximum investment limit for PPF is Rs. 1.5 lakh per financial year.  

●       Equity-linked Saving Scheme (ELSS): ELSS is a type of mutual fund that invests primarily in equity shares of companies. These schemes have a lock-in period of 3 years and are eligible for tax deductions under Section 80C of the Income Tax Act. The maximum investment limit for ELSS is Rs. 1.5 lakh per financial year.  

●       Life Insurance policies: Life insurance policies are eligible for tax deductions under Section 80C of the Income Tax Act. The maximum investment limit for life insurance policies is Rs. 1.5 lakh per financial year.  

●       National Pension System (NPS): National Pension System (NPS) is a pension scheme offered by the government of India and is eligible for tax deductions under Section 80C and Section 80CCD(1B) of the Income Tax Act. The maximum investment limit for NPS is Rs. 2 lakh per financial year. 

●       Tax Saving FDs: One of the most popular tax-saving options in India is the tax-saving fixed deposit (FD). These deposits offer a fixed rate of interest and are eligible for tax deductions upto Rs 1.5 lakh under Section 80C of the Income Tax Act. 
 

TIP 2: Take advantage of tax deductions  

 

The Indian government provides certain deduction and tax-free allowances for expenses. These allowances can be claimed by salaried individuals and can help to reduce your taxable income. Here are some of the popular tax deductions:  

House Rent Allowance 

HRA can help you in saving tax significantly. This can be claimed as tax benefit only if you are actually paying rent for your place of residence. Therefore, deduction for HRA can be claimed by providing rent receipts from your employer to your employer or while filing claim . You can claim HRA exemption on the lowest of the three: 

The amount of HRA you receive. 
If you live in a metro city, 50 per cent of your salary is eligible for HRA deduction. (For non-metro city, 40 per cent is eligible). 
10 percent of your basic pay minus the total rent you pay 
 

Health Insurance

Post the outbreak of COVID-10 health insurance has become as indispensable part of our portfolio. The double advantage is it also gets you tax advantage on health insurance premium. “You can also save the tax by purchasing health insurance policies for yourself including your family. An assessee is empowered to claim a deduction of up to Rs 25,000 for paying the health insurance premiums for themselves including their spouses, and children as per under section 80D of the Income Tax Act. Under that section as a taxpayer, a senior citizen could claim a tax deduction with a limit of up to Rs 50,000. When you purchase health insurance for your parents, you can save another amount of Rs 50,000,” said Amit Gupta, MD at SAG Infotech. 

Home loan deductions 

Home loan gives us major two tax benefits. EMI of home loan has two components: principle and interest. Principle is deductible as part of 80C bracket of Rs 1.5 lakh. And interest is deductible upto Rs 2 lakh (for self-occupied), separately under Section 24. Hence, you can save upto Rs 3.5 lakh in taxes through a home loan. This limit can be higher if you have bought an affordable house where a deduction for interest payments up to Rs 1.5 lakh is available under Section 80EEA. This deduction is over and above the deduction of Rs 2 lakh for interest payments available under Section 24 of the Income Tax Act. The catch is the loan should be sanctioned during the 1st April 2019 and 31st March 2022 and the stamp duty value of the house property should be Rs 45 lakhs or less.   

TIP 3• Income tax return filing within stipulated durations 

  

The due date for filing an income tax return for an individual is July 31. A penalty is imposed when you are unable to file the income tax return as per the stated due date.  A return that is filed after the due date is called a belated return, which attracts late filing fees under section 234 F of the Act. Late filing fees of Rs 5,000 will be charged if the total income of a taxpayer exceeds Rs 5 lakh and Rs 1,000 if the total income of a taxpayer is less than Rs 5 lakh. The carry forward of losses for prior years is not allowed in case of a belated return. 

 

To claim deductions, it is important to keep good records of all your investments and expenses. “Make sure to keep all your bills, receipts, and bank statements, as these documents are required to claim deductions. Additionally, you should also keep records of any charitable donations you make as they are also eligible for tax deductions,” said Bajaj Capital's Aniruddh. 
 

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