As the famous saying goes ‘ A penny saved is a penny earned ‘. Tax planning is one of the ways which can help you save on taxes and increase your income. The income tax act provides deductions for various investments, savings and expenditure incurred by the taxpayer in a particular financial year. We will discuss some of the avenues which can help you save taxes.
CBDT has issued a circular on 20th May 2021 extending the timelines for certain direct tax compliances for AY 2021-22.
1. ITR Filing:
i. The due date for filing ITR by taxpayers not covered under audit is extended from 31st July 21 to 30th Sep 21, for Tax audit cases it is extended to 30th Nov 2021 and for transfer Pricing cases, the due date is extended to 31st December. The due date to file a Belated or Revised Return is extended from 31st Dec 2021 to 31st Jan 2022.
2. Furnishing Audit Report:
i. The due date to furnish the audit report is extended to 31st Oct 2021, the audit report for transfer pricing cases is extended to 30th Nov 2021.
Union Budget 2021 Update:
Exemption from ITR filing to senior citizens aged 75 years and above, earning only pension and interest income.
Recommended ways of saving taxes under Sec 80C,80D and 80EE
- Make an investment of Rs 1.5 lakh under Sec 80C to reduce your taxable income. Additional deduction of Rs 50,000 can be claimed by investing in NPS under 80CCD (1b)
- Buy Medical Insurance, maximum deduction allowed is Rs. 1,00,000 (Rs 50,000 for self and family if senior citizen and Rs 50,000 for senior citizen parents) under Section 80D.
- Claim deduction up to Rs 50,000 on Home Loan Interest under Section 80EE
Investment options under Sec 80C
The most popular tax-saving options available to individuals and HUFs in India are under Section 80C of the Income Tax Act, Section 80C includes various investments and expenses you can claim deductions on â€“ up to the limit of Rs. 1.5 lakh in a financial year.
|5-Year Bank Fixed Deposit||6% to 7%||5 years|
|Public Provident Fund (PPF)||7% to 8%||15 years|
|National Savings Certificate||7% to 8%||5 years|
|National Pension System (NPS)||12% to 14%||Till Retirement|
|ELSS Funds||15% to 18%||3 years|
|Unit Linked Insurance Plan (ULIP)||Varies with Plan Chosen||5 years|
|Sukanya Samriddhi Yojana (SSY)||7.60%||N/A|
|Senior Citizen Saving Scheme (SCSS)||7.40%||5 years|
Other Tax Saving options beyond Sec 80C
Apart from the 80C deductions, there are various deductions under Section 80 you can use to save on income tax. Tax benefits on health insurance premiums and home loan interest are a few-
- Medical insurance premium to be claimed at Rs. 50,000. (Rs 25000 for self spouse and children and Rs 25000 for dependent parents below 60 years). Claim medical insurance premium paid up to a maximum of Rs 1,00,000 per annum if availed for senior citizens. If senior citizens are not covered under any health insurance, then medical expenditure incurred can be claimed under 80D up to Rs 50,000
- Interest paid on a home loan can be claimed as a deduction under section 24 up to Rs 2 lakhs. Section 80EE also allows you to claim a deduction of up to Rs 50,000 on home loan interest which is over and above the limit of section 24. Eligibility of additional interest of Rs 1.5 lakh on purchase of a new house under affordable housing scheme as per section 80EEA is extended till 31st March 2022
- A home loan would also help you in reducing your taxable income as the principal portion of the home loan can be claimed under Section 80C up to Rs 1.5 lakh and the interest portion can be claimed as a deduction from income from house property
- Any charity to notified institutions or funds can be claimed as a deduction under section 80G
- Interest paid on education loan is allowed as deduction under section 80E
How to plan your tax-saving investments for the year
The best time to start planning your tax-saving investments is at the beginning of the financial year.
Most taxpayers procrastinate till the last quarter of the year, resulting in hurried decisions. Instead, if you plan at the start of the year, your investments can compound and help you achieve long-term goals. Remember, tax-saving should be an additional perk and not a goal in itself.
Use the following pointers to plan your tax-saving for the year:
- Check the tax-saving expenses you already have â€“ like insurance premiums, childrenâ€™s tuition fees, EPF contribution, home loan repayment etc.
- Deduct this amount from Rs 1.5 lakh to figure out how much to invest. You neednâ€™t invest the entire amount if expenses are covering the limit.
- Choose tax-saving investments based on your goals and risk profile. ELSS funds, PPF, NPS and fixed deposits are some of the popular options.
This way, you can figure out how to exhaust the 80C limit. It is best to begin investing in the first quarter of the financial year so that you can spread the investments over the year. Doing this wonâ€™t burden you at the end of the year and will also allow you to make informed investment decisions.
Frequently Asked Questions
How does Income Tax work in India?
Given a choice, most of us wouldnâ€™t want to pay tax on the income we earn. But we should. As citizens of India, we are also consumers of the countryâ€™s public infrastructure and facilities, and income tax is an important source of revenue for the government. So, it is our duty and responsibility to contribute towards building and maintaining the public infrastructure. Paying income tax and filing income tax returns on time ensure that.
What do you mean by 80C deduction under chapter VI A?
Income tax department allows reducing of the taxable income of the taxpayer in case the taxpayer makes certain investments or eligible expenditures allowed under Chapter VI A. 80C allows deduction for the investment made in PPF , EPF, LIC premium , Equity-linked saving scheme, principal amount payment towards home loan, stamp duty and registration charges for purchase of property, Sukanya smriddhi yojana (SSY) , National saving certificate (NSC) , Senior citizen savings scheme (SCSS), ULIP, tax saving FD for 5 years, Infrastructure bonds etc
How to save tax other than section 80C?
Apart from 80C, various other provisions allow deductions to taxpayer as follows :
- 80D- for medical insurance premium for self, spouse & dependent parents.
- Section 80EE – Deduction for interest payment of home loan for first home owners
- Section 24- Interest deduction for housing loan upto Rs 2 lakh
- Section 80EEB- interest deduction for vehicle loan for purchase of electric vehicle
- 80G- donations to charitable institutions.
- 80GG-if your income does not include HRA component, you can claim rent deduction under 80GG
- Section 80TTA- deduction upto Rs 10,000 for interest received in saving bank account.
- Section 54 -54F – Capital gain exemption for capital gains.
What is section 80CCD ?
80CCD is a subsection of 80C which allows a deduction for contributions to national pension schemes as notified by the central government. The deduction is allowed for contributions made by an employee, employer or voluntary self contribution. The overall limit of deduction allowed in section 80C is Rs 1.5 lakh plus an additional deduction of Rs 50,000 u/s 80CCD (1b) for self contribution to NPS or Atal pension yojana
What is the maximum deduction under section 80D
Maximum deduction allowed varies in different scenarios as below:
- Individuals can claim a maximum deduction of Rs 25000 for insurance premium for self, spouse and dependent children.
- Individuals can claim a maximum deduction up to Rs 50, 000 including premium for self, spouse, dependent children and dependent parents below 60 years of age.
- Whereas, Individuals can claim a maximum deduction of up to Rs 75, 000 including premium for self, spouse, dependent children and dependent parents above 60 years of age.
- Further Rs 1,00,000 can be claimed as a maximum deduction if an individual is above 60 years of age and makes the payment for premium for self, spouse, dependent children and dependent parents who are also above 60 years of age.
What is section 24?
Section 24 allows a deduction for home loan interest up to Rs 2 lakh if the house property is self-occupied or vacant whereas if the house is rented, the entire interest amount can be deducted from the â€˜Income from house property. This deduction gets redacted to Rs 30,000 if the following conditions are not met (i) Home loan should be taken for purchase or construction of the house property (ii) The loan must be taken after 1st April 1999 (iii) In case of construction of house property, the same should be completed within 5 years.
Who can claim HRA exemption?
Salaried employees who receive house rent allowance as a part of salary and make a payment towards rent can claim HRA exemption to reduce their taxable salary wholly or partially.
How to calculate HRA ?
HRA exemption is allowed least of the below :
- Actual HRA received by the employee
- 40 % of salary for non-metro city or 50 % of salary if the rented property is in Metro city like Mumbai, Delhi, Kolkata, Chennai )
- Actual rent paid less than 10% of salary.
For the above calculation, the salary would include basic, dearness allowance and fixed percentage of commission.
For more on tax-saving investments and expenses, read our extensive Section 80C guide.
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