Taxes are inevitable, but there are many ways to reduce your tax liability and save money. Whether you are a salaried employee or a self-employed professional, you can take advantage of various deductions, exemptions, and benefits under the Income Tax Act of 1961. In this blog, we will share some of the best tips and tricks to save money on taxes in India for the financial year 2023-24.
- Invest in Tax-Saving Instruments Under Section 80C
- Claim Additional Deduction for NPS Contribution Under Section 80CCD(1B)
- Save Tax on Interest Paid on Home Loan Under Section 24(b)
- Avail Deduction for Health Insurance Premium Under Section 80D
- Donate to Charitable Causes and Save Tax Under Section 80G
Tip 1: Invest in Tax-Saving Instruments Under Section 80C
Section 80C is one of the most popular sections for tax saving in India. It allows you to claim a deduction of up to Rs. 1.5 lakh from your gross total income for investing in certain instruments. Some of the common tax-saving instruments under Section 80C are:
- Public Provident Fund (PPF): PPF is a long-term savings scheme that offers an interest rate of 7.1% per annum and has a lock-in period of 15 years. The interest earned and the maturity amount are both tax-free.
- National Pension System (NPS): NPS is a voluntary retirement savings scheme that allows you to invest in various asset classes such as equity, debt, and government securities. The returns are market-linked and vary depending on the performance of the fund. You can withdraw up to 60% of the corpus tax-free at the age of 60 and the remaining 40% must be used to buy an annuity.
- Equity Linked Savings Scheme (ELSS): ELSS is a type of mutual fund that invests at least 80% of its assets in equity and equity-related securities. ELSS has a lock-in period of 3 years and offers higher returns than other fixed-income instruments. However, ELSS is also subject to market risks and capital gains tax.
- Life Insurance Premium: Life insurance is a contract that provides financial protection to your dependents in case of your death. The premium paid for life insurance policies is eligible for deduction under Section 80C, subject to certain conditions. The sum assured received by the nominee is also tax-free.
- Home Loan Principal Repayment: If you have taken a home loan to buy or construct a house, you can claim a deduction for the principal amount repaid during the year under Section 80C. However, the deduction is available only if the construction or purchase is completed within 5 years from the end of the financial year in which the loan was taken.
Tip 2: Claim Additional Deduction for NPS Contribution Under Section 80CCD(1B)
If you are an NPS subscriber, you can claim an additional deduction of up to Rs. 50,000 for your contribution to NPS under Section 80CCD(1B). This deduction is over and above the limit of Rs. 1.5 lakh under Section 80C. This means you can save up to Rs. 2 lakhs by investing in NPS.
Tip 3: Save Tax on Interest Paid on Home Loan Under Section 24(b)
If you have taken a home loan to buy or construct a house, you can claim a deduction for the interest paid on the loan under Section 24(b). The maximum deduction allowed is Rs. 2 lakhs if the house is self-occupied or let out. However, if the house is deemed to be vacant, the deduction is limited to Rs. 30,000.
If you are a first-time home buyer, you can also claim an additional deduction of up to Rs. 1.5 lakh for the interest paid on the loan under Section 80EEA, subject to certain conditions. The conditions are:
- The loan must be sanctioned between April 1, 2023, and March 31, 2024.
- The stamp duty value of the house must not exceed Rs. 45 lakhs.
- You must not own any other residential property on the date of sanction of the loan.
Tip 4: Avail Deduction for Health Insurance Premium Under Section 80D
Health insurance is a must-have for everyone, especially in times of rising medical costs and uncertainties. Apart from providing financial security, health insurance also helps you save on tax. You can claim a deduction of up to Rs. 25,000 for the premium paid for health insurance for yourself, your spouse, and your dependent children under Section 80D.
If you are paying health insurance premium for your parents, you can claim an additional deduction of up to Rs. 25,000 if they are below 60 years of age or up to Rs. 50,000 if they are above 60 years of age.
You can also claim a deduction of up to Rs. 5,000 for preventive health check-ups for yourself and your family members, subject to the overall limit of Rs. 25,000 or Rs. 50,000, as the case may be.
Tip 5: Donate to Charitable Causes and Save Tax Under Section 80G
If you are feeling generous and want to contribute to social welfare, you can donate to charitable organizations and claim a deduction under Section 80G. The deduction can be either 50% or 100% of the donation amount, depending on the organization and the limit specified by the government.
However, the deduction is subject to certain conditions, such as:
- The donation must be made in cash or cheque. No deduction is allowed for donations made in kind, such as clothes, food, etc.
- The donation must be made to an organization that is registered under Section 12A and approved under Section 80G by the income tax department.
- The donation must not exceed 10% of your adjusted gross total income.
You can find the list of eligible organizations and the limits applicable on the income tax website or consult a tax expert before making a donation.
Conclusion
These are some of the tips and tricks to save money on taxes in India for salaried employees and self-employed professionals. However, these are not the only ways to save tax. There are many other deductions and exemptions available under various sections of the income tax act, such as Section 80E for education loan interest, Section 80TTA for interest on savings account, Section 80GG for rent paid, etc.
The best way to save tax is to plan your investments and expenses in advance and choose the ones that suit your financial goals and risk appetite. You should also keep track of your income and tax liability throughout the year and file your income tax return on time to avoid any penalties or interest.
We hope this blog has helped you understand how to save money on taxes in India.