None of want to pay tax on the income we earn but unfortunately income tax is reality that hurts our pocket. You can't run away from that reality, but there are ways by which you can maximize your tax savings and reduce income tax liability by availing the benefit of provisions relating to deductions/exemptions from taxable income under various sections of Income Tax Act.
What is my tax slab?
Before I proceed, let us look at the income tax slab for FY 2017-18.| Income | Income Tax slab for below 60 years of age | ||
| Up to 2.50 lakhs | No Tax | ||
| Between 2.5 to 5 lakhs | 5 % | ||
| Between 5 to 10 lakhs | 20 % | ||
| 10 lakhs and above | 30 % | ||
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Tax Planning through Home loan
Don't take home loan to save tax only. Home loan should be availed to buy house and not to save tax, but in case you have taken home loan you can save tax both on the principal component as well as interest component.
Repayment of principal amount is allowed to claim deduction under section 80C. Moreover, you can also claim deduction for the interest paid on home loan under section 24. For more details you can go through this link - "Home Loan Tax Benefits"
Tax Planning through NPS
NPS, New Pension Scheme is being pushed heavily by the Government of India. It has generated a lot of interest because of the additional tax benefits offered by the the investments in NPS. For someone in the 30% tax slab, it directly offers a tax saving of Rs. 15,000 on the investment of Rs. 50,000. To get more details read - "NPS Tax Benefits"
Deductions you CAN plan
Tax planning is not a activity to be done at the year end, it needs to done at the starting of financial year. There are few deductions which you can plan and some you cannot. These deductions are for people below 60 years of age.
Deductions You can Plan
| ||
Section
|
Description/Information
|
Maximum Deduction Allowed
|
80C
|
Investment in eligible securities, Expenditures, Repayments etc. (PF, PPF, Life Insurance, NSCs, ULIPs, MFs, Home Loan repayment, tuition fees etc.)
|
1,50,000
|
80CCC
|
Premium Paid for Annuity Plan of LIC or Other Insurer.
| |
80CCD(1) (assesses contribution)
|
Contribution to Pension Account by assesse upto 10% of salary
| |
Total
|
Deductions available u/s 80C, 80CCC and 80CCD(1) (Max. Rs. 1.50 lac)
| |
80CCD(1B)
|
Contribution to NPS (New Pension Scheme)
|
50,000
|
80CCG
|
Amount invested in listed shares
(For persons whose taxable income is upto Rs. 10 lacs and who availed benefit under this section for AY 2017-18.)
50% of the amount invested.
|
25,000
|
80D
|
Health insurance of self / family.
|
30,000 if Senior Citizen, else 25,000
|
80D
|
Health insurance of parents.
|
30,000 if parents are Senior Citizen, else 25,000
|
80G
|
Donations eligible for deduction upto 100% / 50% / with or without restriction
|
No limit
|
Deductions you CANNOT plan
There are few deductions which you cannot plan and are either dependent on employer or bank or unseen emergency. Here are such deductions which if arises can save your tax outflow.
Deductions You CANNOT Plan
| ||
Section
|
Description/Information
|
Maximum Deduction Allowed
|
80CCD(2)
|
Contribution to Pension Account by employer. (Max. 10% of salary)
|
10% of Salary
|
80DD
|
Medical treatment of handicapped dependent relative
(Max. - Rs. 75,000/-. Rs. 125,000/- in case of severe disability.)
|
Rs. 75,000/-.
Rs. 125,000/- in case of severe disability.
|
80DDB
|
Medical treatment of specified disease or ailment for self or dependent relative.
(Max. - Rs. 80,000 for Very Senior Citizen, Rs. 60,000 for Senior Citizen and Rs. 40,000 for others)
|
Rs. 80,000 for Very Senior Citizen,
Rs. 60,000 for Senior Citizen and Rs. 40,000 for others
|
80E
|
Interest on Educational Loan for Higher Studies of self/ family member or a relative. (Max. - No upper limit)
|
No Upper Limit
|
80EE
|
This is for first time home buyers. Deduction in respect of interest on loan taken for residential house property
|
50,000
|
80GG
|
House Rent Paid
|
Rs. 60,000
|
80RRB
|
Income by way of Royalty of a Patent
|
Rs. 3,00,000
|
80TTA
|
Interest on Savings Accounts (not time deposits), available to Individuals or HUFs.
|
Rs. 10,000
|
80U
|
Persons suffering from Physical Disability
|
Rs. 75,000/-.
Rs. 125,000/- in case of severe disability.
|
24
|
Interest accrued on Home Loans
|
Rs. 2,00,000
|
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