Paying your taxes annually can be daunting because of the complexities involved. It can be challenging for anyone to let go of hard-earned money, which you can utilise to meet your needs. The tax rules in India are guided by the Income Tax Act, which came into effect in 1961. No matter if you are a salaried individual, a self-employed professional or an entrepreneur, the income you earn in a financial year is taxable. However, the IT Act also has many sections that give you tax savings under different sections.
Here are a few ways by which you can save your income tax
Invest in tax-saving instruments
To encourage individuals in various investment schemes, the government of India offers tax deductions on the amount invested in specified instruments. Some of the most popular tax savings instruments in India are –
- PPF (Public Provident Fund)
- NPS (National Pension System)
- Life insurance Policies
- EPF (Employee Provident Fund)
- Fixed Deposits with an investment tenure of five years or more
Investments in these instruments are eligible for tax savings under Section 80C of the Indian Income Tax Act. You can get a maximum deduction of up to Rs. 1.5 lakhs in a financial year.
Apart from getting valuable tax benefits, investing in these instruments like NPS and PPF allows you to get good returns in the long run.
Increase your contribution to the retirement fund
If you are a salaried individual, you can consider making an additional contribution towards the voluntary provident fund in addition to the mandatory deductions from your salary if your investment limit of Rs. 1.5 lakhs are not fully utilised. The additional contribution will not only help you get valuable returns in the long run, but you will also get additional tax savings subject to certain conditions.
Tax benefit on home loan
If you have availed of a home loan from an NBFC or a bank to construct a new home or purchase a ready-to-move-in flat, you can avail valuable tax benefits on repayment of the principal and interest components of the loan.
The maximum deduction you can get on repaying the principal amount is Rs. 1.5 lakhs in a financial year, and the limit is inclusive of the tax savings you get from your investments in different financial instruments that qualify for deductions under Section 80C of the IT Act.
Apart from this, under Section 24 of the IT Act, you can get tax benefits up to Rs. 2 lakhs in a financial on repaying the interest component of a home loan.
Tax benefit on health insurance
Health insurance is necessary for all as it allows you to get financial protection against medical expenses. Besides, it is also an effective tax saving investment option. The premium you pay for a health insurance policy is subject to tax benefits up to Rs. 25,000 in a financial year under Section 80D of the IT Act.
Thus, there are different ways to save your taxes. You must be prudent with your investment choices as it plays a vital role in helping you get good returns without taking too much risk and, at the same time, get tax benefits.