Tax Saving Options Other Than 80C
Are you aware that while the government asks you to pay a huge chunk of your income as taxes, it also provides you with various means by which you can save significant sums of money on your income tax? In India, one can legally save on his or her taxes by making sound investments that qualify for exemptions and deductions under the Income Tax Act, 1961. Has your interest been piqued? Read on!
Listed below are some of the most used and efficient methods of saving one’s income tax beyond the provisions of Section 80C–
- Money from Life Insurance Policy
Money from a life insurance policy is received when the policy matures or when you receive a claim amount. The amount received is exempt from tax if the premium does not exceed 15% of the sum insured.
2. Health insurance premium
A taxpayer can avail deductions under Section 80D of the Act for health insurance premiums. A certain portion of the total funds that are paid as the health insurance premium is not tax-deductible. The savings that the taxpayer has is of a higher sum if the person in question is a senior citizen or a super senior citizen.
3. Amounts received as dividends on equity mutual funds or shares
Amounts received as dividends on equity mutual funds or shares is tax-free.
4. Amount received on sale of equity mutual funds or shares
A 10% tax is available on the amount received on the sale of equity mutual funds or shares if the long-term capital gains tax is more than INR 1,00,000.
5. Tax deduction while buying a home loan
A taxpayer can save a significant sum on his or her home loan by claiming a maximum deduction of INR 2,00,000 for the interest paid on the same under Section 24 of the Act. Additionally, if the taxpayer lets out the newly acquired property on rent, the entire interest component is exempt from annual income tax calculations.
6. Income through savings account interest
The interest earned on savings account is exempt to a maximum limit of INR 10,000 and extends to INR 50,000 in the case of senior citizens. This amount is cumulative of all saving bank accounts.
7. Income through NRE Account interest
Non-resident Indians have NRE accounts in India and earn interest for the amount deposited. This interest is not taxable.
8. Provident Fund
Interest received on the provident fund is not taxable provided you wait for a period of five years before withdrawing the amount.
9. Money spent on donation to charity
Section 80G provides for deductions when one donates money to certified charities and institutions. This deduction can only be claimed after submitting a valid certificate from a charitable institution. Donations that you make to specific organisations in the form of cash are eligible for a tax waiver that amounts to INR 2,000. There are four main classes of donations and deductions -
- Donations with 100% deduction without any qualifying limit, such as the National Defence Fund set up by the Central Government.
- Donations with 50% deduction without any qualifying limit such as the Jawaharlal Nehru Memorial Fund or the Prime Minister’s Drought Relief Fund.
- Donations with 100% deduction subject to 10% of adjusted gross total income such as Government or any approved local authority, institution or association to be utilized for the purpose of promoting family planning.
- Donations with 50% deduction are subject to 10% of adjusted gross total income such as any institution which satisfies conditions mentioned in Section 80G(5).
10. Money spent on donation to political party
All donations given to recognised or unrecognised political parties or contribution to electoral trusts entitles the taxpayer to tax waivers under Section 80GGC.
11. Leave Travel Allowance (LTA)
Section 10(5) of the Income Tax Act states that an employee can make use of this exemption for leave travel allowance to cover for tickets of one’s spouse, children and parents. Please note that this can be availed by only dependent children and not those who are married or pay tax themselves.
12. If House Rent Allowance (HRA) is a part of salary and if not
Section 10(3) of the Act states that one can avail tax benefits if HRA is part of the salary and there are receipts to prove that you reside in a rented building. In cases where HRA is not a part of the salary, then the tax benefit can be availed by firstly, subtracting rent from 10% of income, secondly, a flat rate of INR 5000 on a monthly basis, and thirdly, 1/4th of total income. These deductions are a part of Section 80GG.
The deduction under this section is allowed when you meet the lowest of these following three conditions:
a) At least 25% of the total income, excluding any capital gains. This will be INR 1.5 lakh on an annual income of INR 6 lakh.
b) Actual rent minus 10% of income. This would be INR 84,000 if you were paying INR 12,000 monthly rent (INR 1.44 lakh – INR 60,000)
c) Or INR 60,000
13. Gratuity amount
The taxpayer is exempt from paying taxes on gratuity for a maximum sum of INR 20,00,000.
14. Voluntary Retirement Scheme amount
The pay-outs received from a VRS is not taxable up to a limit of INR 5,00,000.
15. Food or meal coupons, Telephone and internet expenses and company leased car
Meal coupons are not taxable to a limit of INR 2,600. The company leased car can be
utilised to save tax.
16. Standard deduction
There is a standard deduction of a maximum amount of INR 40,000 that can be availed by the taxpayer.
A taxpayer can save on his or her tax using any of the following claims too - Educational scholarship, Wedding gift, Income from agriculture, Inherited money, Extra contribution to NPS, Educational loan, Expenses related to treating disabled dependent, and Expenses related to treating specific diseases. These are all separately covered under the provisions of the income tax act.
Most of us are averse to the idea of paying taxes and view it as a financial burden that is best done away with. With the help of the provisions mentioned above, one can save a considerable sum in his or her tax liability. Understand the implications of each of the means and methods stated above and use them intelligently to save on your income tax.