How Much Tax Can be Saved..?
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Tax Saving is a Skill...
You will not want to give your hard-earned money to anyone, right ...?
Not even to the government in the form of taxes. Of course, you have to pay taxes to the government, above a certain limit of the money you earn.
But my dear readers, let me tell you...
There are certain ways to reduce your tax payable or to bring your tax liability down to zero as well...
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There's a way to earn some money as well while saving your taxes. Nowadays, most of people want to invest in a kind of tax saver instrument which will help their money to grow and beat inflation. I personally will not like to keep my money lying in a savings account.
I have seen most of the people who start investing when the ending of FY(Financial Year) is near: just to save the tax for that year and to get the TDS (Tax Deducted at source) back by filing the IT Return. (Trust me I was the same guy, two years before.😁)
But sometimes we miss the deadline or we may have short of funds in March.
So instead of rushing in Feb and March, we should plan for these instruments from the very start of the financial year.
Quick Links for you :
With your valuable comments,
80C: Upper Limit: 1.5 Lakh
You can get a tax exemption of 1.5 lakh of an amount under this section of income tax.
This section also includes a contribution towards the Provident fund popularly known and abbreviated as PF.
Below are some additional and famous tax saving investment options which can be claimed under 80 C
LIC: Life Insurance Corporation
Premium towards LIC can be claimed for tax exemption under section 80C. This is a very famous money instrument in India. I will be soon publishing my blog related to LIC.
So, Stay tuned... 😇
ULIP: Unit Linked Insurance Plan
ULIP stands for a unit-linked insurance plan. ULIP is a combination of insurance and investment. This is becoming popular in IT professionals now as a small amount of the premium goes to secure life insurance and the rest of the money is invested just like a mutual fund does.
PPF: Public Provident Funds
PPF is also a very popular kind of investment among IT employees because of its twin benefits of tax saving and long term secured investments.
It is a government established savings scheme which is available for the tenure of 15 years available in almost every bank and post office in India. The rate of interest changes every quarter and the interest on PPF is tax-free.
It is a government established savings scheme which is available for the tenure of 15 years available in almost every bank and post office in India. The rate of interest changes every quarter and the interest on PPF is tax-free.
Finajinkya recommends this option to you..!
NPS: National Pension Scheme
Your contribution to NPS can be claimed under this section. This is a very popular retirement planning investment. Explained in detailed in the next sections
NSC: National Saving Scheme
National Savings Certificate guarantees a fixed rate of interest and has a tenure of 5 years. The interest received on NSC is counted as a tax saving option and up to Rs 1.5 lakh amount can be taken as a rebate under section 80C.
ELSS: Equity Linked Saving Scheme
This option is preferred by most of the people who don't want to park their funds for a long lock-in period. This is a special kind of mutual fund which is allowed to claim under this 80C. ELSS has a short lock-in period of 3 years. So you can withdraw your whole amount after 3 years (in case of lump-sum amount).
Finajinkya also recommends this option to you..!
FD: Fixed Deposit of 5 Years
The principal amount of Fixed Deposit (FD) of 5 years of maturity period can be claimed in this section. This is the popular option for those who don't want to take any risk on their money.
Principal Repayment of your home loan
The Principal amount contributed towards your home loan from your EMI can be claimed under 80 C. This is the major source of deduction one can have to reduce the TDS. I myself use this instrument for my tax declaration under 80C.
Payment towards Sukanya Samridhi Yojana
This Scheme is related to a girl child and comes under the 'Beti Bachao Beti Padhao' campaign. Parents or legal guardians can open only one account per girl child and a maximum of two accounts in the name of two different girl children. Premium towards this scheme comes under 80C.
The maturity amount is payable after the completion of 21 years. A penalty will be levied if the minimum amount required is not deposited in a single financial year.
The investment amount, the interest earned and the maturity amount all are tax exempt.
Post office saving schemes
This is very popular among our senior citizens. There are many post office schemes present which give a good 6.6 % to 8.3 % return over a fixed tenure. This is a very trustworthy instrument in India as it is a government-related scheme.
Maximum Rs. 1.5 lakh can be claimed in 80 C using all these instruments combined.
80CCD : Upper Limit : 50,000 : Additional Contribution to NPS
NPS in terms of taxation stands for National Pension Scheme. Contributing to NPS can save your additional 50000 from your taxable income. This is over and above the limit of 80C.
if you are planning for your retirement corpus from this point onwards {and actually you should plan}, National Pension Scheme is a very wise option.
NPS lets you invest in equity and debt pension funds. This means your NPS contributions are invested in the equity and debt pension funds. This amount can be withdrawn when your age is 60. So, you will have good money for your retirement by using this trusted and assured return investment.
80D: Upper Limit: 1 Lakh: Medical Insurance
Section 80D is used to claim medical insurance of the self and family.
For Self, Spouse, Children: 25,000
For Parents more than 60 Years of age: 50000
For Self & parents both more than 60 years of age: 1 Lakh
Scenario 1: Mr. X at age 30 years can claim his medical insurance of about 25,000. So a total of 25000 he can claim under 80D.
Scenario 2: Mr. X at age 30 years can claim his medical insurance of about 25,000 and his father is of 62 years. So Mr.X can claim 50000 for his father's medical insurance.
Hence a total of 75000 he can claim under 80D.
Scenario 3: Mr. X at age 61 years can claim his medical insurance of about 50,000 and his father is of 84 years. So Mr.X can claim 50000 for his father's medical insurance.
Hence a total of 100000 he can claim under 80D.
80G : Upper Limit : 100 % or 50 % : Donations
The donations made to some specific government-approved funds are eligible to claim a deduction under 80G. The amount qualifying for deduction under Section 80G can be either 100 percent or 50 percent, depending on the entity to which donation is made.
The deduction is further limited to 10 percent of adjusted gross total income in some cases.
However, the donations made during the recent pandemic of Covid-19 to PM CARES fund can also be claimed under this and for your knowledge, there is no upper cap for these donations
Let's say you have donated 1 Lakh to PM cars fund then this complete 1 Lakh is eligible for deduction under 80 G, So your taxable income is further reduced by 1 Lakh
80TTA: Upper Limit: 10000: Interest received on saving account
Under the Income Tax Act that any individual can claim, Interest received on savings accounts is tax-free up to Rs 10,000 per year which falls under Section 80TTA.
24B: Upper Limit: 2 Lakh: Interest on Home Loan
This is used to claim the interest amount on your housing loan if you have taken a housing loan from financial firms/banks, and you are paying EMI to them.
EMI has a Principal and an interest component in it. So the amount of interest component from your EMI is eligible to claim under this section 24. { whereas principal component is claimed under 80C }
10 (13A): Upper Limit: case to case basis upon CTC: HRA
This section is also known as HRA: House Rent Allowance.
HRA is one of the tax-saving options. If you are staying in rented accommodation, then you can claim some part of your rent amount as a deduction under HRA. Most of the times this HRA is a part of salary and included as a component in CTC
To calculate your HRA, consider the below points :
- Actual HRA component of salary
- 50% of basic salary if he living in Delhi, Chennai, Kolkata, or Mumbai; 40% if his residence is in any other city
- Actual rent paid less 10% of basic salary
As per Section 10 (13A), HRA is the minimum among the above three calculations.
Let's understand this with a below simple example
1st Calculation :
In your monthly paycheque I see that the HRA component is 10,000 {in your case it can be different depending upon the salary},
So actual HRA provided by the company is 10,000 for monthly, and for annual its 1,20,000
2nd Calculation :
Your Basic salary component is 30,000 per month and 30,000*12 = 3,60,000 per annum
and you are living in Mumbai. So 50% of it is 1,80,000.
3rd Calculation :
you are paying a rent of 10,000 p.m, annually it will be 10,000 * 12 = 1,20,000
the calculation is rent paid - 10% of basic
i.e, 1,20,000 - (10% of basic salary which is 3,60,000)
= 1,20,000 -36,000
= 84,000
So the lowest of the above 3 calculations is 84000, So your eligible HRA for deduction under this section is 84,000. However, out of 1,20,000 HRA received as a salary, 84,000 is tax-free.
Summary :
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| I.2 Deductions up to Rs. |
Further updates expected on this post sooner:- Term insurance
You can write your queries in the comments section related to this post if any...
Stay tuned for the next blog on "Why should one invest now?"
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