This article has been contributed by Shreya Sharma, CEO and Founder, Rest The Case.
Since the finance minister has announced the budget for the year 2023-2024, everyone is curious to know the various ways through which they can save their tax money by fitting their income under Rs. 7 lakhs. The government has decreased the tax liability for those who earn an income of fewer than Rs 7 lakhs per annum. As per the new norm, whatever tax is charged up to an income of Rs 7 lakhs will be refunded back to the people. Let's learn more about tax-saving instruments in this article.
As a norm, every Indian has to pay a particular amount of tax to the Indian government as part of their contribution. In India, the Income Tax Act of 1961 governs and regulates all the tax implications. The tax imposed depends on the income slab of one's earnings. However, you can reduce your tax liability under various sections of the Income Tax Act of 1961.
1.Life Insurance Premiums
2.Investments in Public Provident Fund (PPF)
3.Equity-Linked Savings Scheme (ELSS)
4.National Pension Scheme (NPS)
5.Unit Linked Insurance Plans (ULIP)
6.Employee Provident Fund
1.Health Insurance Premium
2.Preventive Health Check-up
3.Additional Deduction for Dependents
Section 80C of the Income Tax Act allows individuals to claim deductions on their taxable income by investing in certain specified instruments. The maximum deduction limit under this section is Rs. 1.5 lakh for individuals and Hindu Undivided Families (HUFs) for the financial year 2022–23. Taxes under Section 80C are only imposed on individual taxpayers and Hindu Undivided Families. Businesses other than corporations, partnerships, and partnerships are not eligible to claim Section 80C tax exemptions. The various tax-saving options under Section 80C of the Income Tax Act are as follows:
1. Life Insurance Premiums
One can save tax by paying the premiums for life insurance for yourself, your spouse, or your dependent children.
2. Investments in Public Provident Fund (PPF)
PPFs are a popular investment scheme that saves tax and is considered a safe investment option since they are issued by the government.
3. Equity-Linked Savings Scheme (ELSS)
An open-ended mutual fund scheme in which at least 80% of assets are invested in stocks. ELSS funds' returns vary according to market performance.
4. National Pension Scheme (NPS)
Designed to provide post-retirement pension benefits to working professionals and unorganized sector earners, any Indian between the ages of 18 and 60 can open an account under the NPS scheme.
5. Unit Linked Insurance Plans (ULIP)
In unit-linked insurance plans, investors get insurance and investments in one package. In addition to providing life insurance, ULIPs also help investors build wealth.
6. Employee Provident Fund
An Employee Provident Fund is a retirement savings plan that is backed by the Indian government. It is available to all salaried employees. Under this scheme, a certain percentage of your basic salary and Dearness Allowance must be contributed.
You can invest in one or more of these instruments to claim deductions under Section 80C. It is important to note that the maximum deduction limit of Rs. 1.5 lakh includes all investments made under this section. Therefore, it is important to plan your investments and make the most of the available tax benefits.
As per Section 80D of the Income Tax Act, 1961, tax deductions are provided for the expenses incurred towards medical insurance and health check-ups. The deduction is available to individuals and Hindu Undivided Families (HUFs). Below is the enclosed list of the deductions available under Section 80D:
1. Health Insurance Premium
A deduction can be claimed for the premiums paid on health insurance policies for yourself, your spouse, your children, and your dependent parents up to Rs. 25,000. In case the premium is paid for senior citizens, the maximum deduction limit is Rs. 50,000.
2. Preventive Health Check-up
There is a maximum deduction of Rs. 5,000 available for expenses incurred on preventive health check-ups for yourself, your spouse, your children, and your dependent parents.
3. Additional Deduction for Dependents
An additional deduction of Rs. 50,000 can be claimed if you pay the health insurance premium for your parents, who are seniors, therefore, the total deduction available for health insurance premiums is Rs. 1 lakh (Rs. 50,000 under Section 80D and Rs. 50,000 under Section 80DDB).
It is significant to note that the total deduction under Section 80D cannot exceed the actual amount paid towards health insurance premiums and preventive health check-ups. Therefore, all the records of the expenses and the relevant receipts should be maintained to claim the deductions under Section 80D.
This section is a blessing for all the people who are planning to purchase their dream house, as it provides an additional deduction for first-time homebuyers. Available to all first-time buyers who wish to entail a loan for the purchase of a residential property, it is one of the best tax-saving instruments, provided there should not be any other residential property in their name on the date of sanction of the loan.
It allows a maximum deduction of Rs. 1.5 lakh and is available for the interest paid on the home loan during the financial year. The deduction is available for a maximum of 7 years or until the interest on the loan is fully paid, whichever is earlier. Further, it states that the loan should be taken from a financial institution, such as a bank or a housing finance company, and the value of the residential property purchased with the loan should not exceed Rs. 50 lakh.
A variety of tax saving modes have been provided by the Indian Government, which not only reduces our liabilities but also encourages us to invest in various plans and schemes. A tax savings plan and a thoughtful investment strategy are essential for enjoying good returns on your investments and saving taxes.