How to Save Income Tax for FY 2023-24

As responsible citizens of India, it is the duty of every individual to pay taxes to the government. The government allows you to save on income tax in a legal manner. The Income Tax Act, 1961, provides a host of exemptions and deductions. You may, therefore, make use of such deductions available under various sections and reduce your income tax liability largely.

6 tax saving option in India.

Utilize Section 80C

Section 80C of the Income Tax Act allows for numerous deductions. The good news is that the maximum limit under this section is INR 1.5 lakh and hence you may save a significant amount by limiting your tax liability.

Some of the popular instruments available under Section 80C are as follows.

Provident Fund

Provident Funds that are covered under the Provident Fund Act offers tax deductions. You may claim tax relief on the amount payable from your salary towards Employee Provident Fund (EPF) or that of Public Provident Fund (PPF). Currently, the EPF interest rate is 8.55 percent and that of PPF is 7.60 percent.

Tax saving Fixed Deposits

There are certain tax-saving fixed deposits (FDs), which provide tax benefits. These FDs come with a lock-in period of five years. The rate of interest offered on such an investment vehicle varies from bank to bank. However, returns on such an instrument are guaranteed and offer capital protection.

National Pension System

National Pension System (NPS), offered by the Government of India, provides retirement benefits to the unorganized sector and working professionals. Besides utilizing the maximum cap of which includes expenses towards the treatment of a specified illness. You may also avail of tax benefit on expenses incurred while treating a dependent, under Section 80DD.

Restructure your salary structure

Salaried employees may enjoy numerous (HRA), under Section 10 (13A) of the Income Tax Act. You may claim a minimum of –

• Actual House Rent Allowance received
  
• Excess of yearly rent paid over 10% of your salary
  
• 50% if you reside in a metropolitan city or 40% for a non-metropolitan area
  

You may also claim deductions under Section 10(14) on children’s education allowance up to a limit of INR 100 per month for each child, up to two children. You may also claim a tax deduction on hostel expenditure allowance up to a maximum limit of INR 300 per month for each child, up to two children.

Salaried individuals may also claim a tax deduction for medical expenses up to a limit of INR 15,000. You may, therefore, submit your medical bills to your employer on time in order to enjoy tax benefit on reimbursement of your medical bills. Another income tax deduction allowed for salaried individuals is on Leave Travel Allowance (LTA). Exemption on LTA is allowed for the shortest distance from the start point to the farthest point. This benefit is allowed on travel within India and not internationally. Besides, you may enjoy such a tax benefit on a travel of yourself, spouse, dependent parents, dependent children, and siblings.

You may also restructure your salary in such a way in order to receive transport allowance. You may then claim a tax deduction for expenses incurred for traveling from your place of residence to your office, and back. Section 10(14) offers a maximum deduction of up to INR 1600 per month.

Enjoy tax benefit on home loan

You may enjoy a tax relief of up to INR 2 lakh on the interest payable towards your home loan. According to Section 24 of the Income Tax Act, such a benefit may be availed on a self-occupied property. Moreover, you may reduce your tax liability on the principal amount paid towards the loan. Here, you may claim a maximum deduction of INR 1.5 lakh under Section 80C.

Avail of tax benefit on education loan

Many individuals borrow an education loan to fund their higher education either for studying within the country or internationally. The entire interest payable on such a loan in a particular financial year is eligible for tax deduction under Section 80E of the Income Tax Act. The loan may be taken for self, spouse, or dependent children. It is important to note that unlike home loans, there is no deduction allowed on the principal amount for education loans.

Make donations

The donations that you make towards charity are available for tax deduction under Section 80G of the Income Tax Act. The amount that is exempt from tax varies. While some donations are exempted for 100 percent, some allow 50% exemption from tax. It is important to note that donations made only through cash or checks are allowed for deduction.

Besides the aforementioned ways to save tax, you may reduce your income tax liability through numerous other ways. This includes donations made to political parties (Section 80GGC), donations made towards scientific research (Section 80GGA), and treatment of serious disease (Section 80DDB), among many others.

You may, therefore, take advantage of such deductions and exemptions allowed under the Income Tax Act, 1961. You may begin planning your taxes at the beginning of the financial year instead of waiting towards the end. By doing so, you may spread your investments over the year. You will then be able to make well-informed and smart tax-saving decisions.