Depending to your choice of the tax scheme, you can maximize your tax savings by using the following techniques which give a comprehensive approach on how to save income tax.

1. Invest in Equity-Linked Saving Scheme (ELSS)

These are mutual funds that guarantee multiple benefits as well as tax reductions under section 80C. Investments made into Invest in Equity-Linked Saving Scheme up to Rs 1.5 lakh in a year can be reduced from your taxable salary under the relevant section.

Moreover, being an equity-based fund is a good approach how to save income tax, the gains up to Rs 1,00,000 in a financial year from Equity-Linked Saving Scheme mutual funds are exempted from tax. While there are a few other instruments as well that can be used for claiming reductions under section 80C, Equity-Linked Saving Scheme has the lowest lock-in period of 3 years amongst all.

2. Invest in the National Pension Scheme

In addition to Rs.1,50,000 reduction available under section 80 Cash Concentration and Disbursement (1), Rs. 50,000 more can be claimed as a reduction under Section 80 Cash Concentration and Disbursement (1B) if you invest in NPS. Furthermore, if you’re a salaried employee as well as your employer contributes some amount towards National Pension Scheme, you can claim reduction under section 80 Cash Concentration and Disbursement (2) for the amount contributed. However, this reduction is available up to 10% of basic salary + Dearness allowance.

Importantly, the reduction available under section 80 Cash Concentration and Disbursement (2) is available even if you opt for the new tax scheme.

3. Invest in Sukanya Samriddhi Yojna

This investment promises fixed returns which are tax-free and is a good approach on how to save income tax. Also, the maturity amount as well as principal are not taxable. Though, the amount invested is inaccessible till your daughter turns 21 years of age. The scheme is a convinient way of saving tax if you have a daughter.

4. Know When to opt for the New Tax Management

One of the first decisions that you will have to pay while paying tax is choosing a tax management that is most beneficial method on how to save income tax. This depends on some following factors;

  • Your total income
  • Reductions you are eligible for, and
  • Your tax liability
Income (in Rupees)Old RateNew RateRemarks
Up to 2.5 Lakhs00
2.5 Lakhs – 5 Lakhs00If gross taxable income is less than Rs. 5 Lakh. *
2.5 Lakhs – 5 Lakhs5%5%If gross taxable income is more than Rs. 5 Lakhs*
5 Lakhs – 7.5 Lakhs20%10%
7.5 Lakhs – 10 Lakhs20%15%
10 Lakhs – 12.5 Lakhs30%20%
12.5 Lakhs – 15 Lakhs30%25%
More than 15 Lakhs30%30% 
Exemptions and DedicationsYESNO 

Tax Saving can be maximized in Financial Year 2020-21 if you choose the tax scheme carefully after analyses of your income as well as investment. Although, in the old scheme, you have the leverage to take exemptions, the new scheme gives you lower tax rates.

SAVE TAX WITH THE HELP OF A PROFESSIONAL

While you can file your tax returns by yourself, there are many facilities and benefits that you may miss out on. Consulting a tax and financial expert can help you plan your taxes better for optimal utilization of benefits under the income tax act.

Filing income tax returns (ITRs) can get tiresome for taxpayers. Not only does one have to guarantee that they pay their taxes on time, but also make certain that their investments for saving tax are done. If one does not claim eligible reductions, they end up paying more in taxes, which could have otherwise been saved.

Although, the public belief that one has to advance in tax-saving instruments to save tax isn’t necessarily true. Whether a taxpayer faces liquidity issues as well as resolves against investing in new tax-saving instruments for any other reason, it is possible to save tax with no investment for the new fiscal year. Following are a few ways in which taxpayers can save tax, without investing in new instruments for Financial Year 2020-21.

Children’s Tuition Fees as well as Hostel Allowance

Under section 10(14) of the Income Tax Act, 1961, any special allowance given by the employer to their employee towards the education of the employee’s children with a maximum of two, along with the hostel expenditure is granted an exception. This exemption for children’s education allowance is constrained to Rs. 100 per month, while the hostel expenditure is constrained to Rs. 300 per month.

Moreover, under section 80C of the Income Tax Act, the tuition fees for full-time education of not more than two children of the employee, paid to any educational institution in India by their employer are also eligible for reduction of up to Rs. 1.5 lakh.

Reduction for Interest Paid on Home Loans

For individuals buying a home for the first time, a special provision has been put in place, providing a reduction for the interest paid on home loans is a comprehensive approach on how to save income tax. Home loan equated monthly instalments (EMIs) consist of a principal component and an interest component. Under section 80EE of the Income Tax Act, individual taxpayers can claim a saving of up to Rs. 50,000 on the awareness component of the paid by them. However, the loan amount should not exceed Rs. 35 lakhs, while the value of the residential home is maximum of Rs.50 Lakhs

Furthermore, under section 80C of the Income Tax Act, the principal component of the equated monthly instalments can also be availed as a reduction, with the overall limit being Rs. 1.5 lakh.

House Rent Allowance

Self-employed and salaried individuals working in places where they do not own residential properties can avail of the reduction of House Rent Allowance (HRA), based on the rent they pay. Section 10(13A) of the Income Tax Act, concerning House Rent Allowance (HRA), offers an exemption of least of the following amounts:

a) 40 – 50 percent of the amount they accept as salary (50 percent in case the employee is living in a metropolitan city)

b) The actual amount that is received as House Rent Allowance.

c) The rent amount must exceed 10 percent of the employee’s salary

To benefit from the tax claims, the taxpayer has to provide the rent receipts, along with other details to the employer, to calculate the exemption amount.

Employees’ Provident Fund (EPF)

One of the reductions made from the employee’s salary is the Employees’ Provident Fund (EPF) and has to be taken into consideration while calculating tax reductions. Under section 80C of the Income Tax Act, this contribution made by the employees towards a recognized provident fund is allowed as a reduction, with the overall limit being Rs. 1.5 lakh.

Though taxes are difficult to avoid, there are many methods to reduce them. To have a clear insight off tax saving, you need to understand tax slabs too. If you are also looking for tax-saving options, then you can invest your finance as well as use it as a saving instrument in the future as well. Also, you can also use many different allowances to save taxes. These are some ways to reduce taxes on your income.

Ways to save on your income taxes

This is not a comprehensive list but has all the major exemptions. Many other exemptions are eligible in numerous unique situations. As you can see, a lot of these exemptions have limits to cover only your basic needs as well as expenses. Knowing as well as understanding these allowances and exceptions is the first step while optimizing your finances.

Contribute to the National Pension System (NPS)

One of the best ways on how to save income tax is to contribute some amount to National Pension System. There is a reduction available under Section 80CCD up to Rs 50,000 for contributions to the National Pension System. This contribution helps you to invest in equity as well as debt pension funds so that you can build a retirement savings aggregation. This amount can be withdrawn later at the age of 60.

Get a reduction on interest paid on your home loan

Your home loan may also save some amount for you. If you have a home loan and the interest payable on it is tax-reducible which comes under Section 24 of the Income Tax Act, then up to Rs 2 lakh per annum amount can come under reductions. But if you obtain the house rent from that property, there is no upper limit. Although, this total loss can be availed in the head of income from house property which is decided up to Rs 2 lakh.

Secure some amount for future

One of the easiest ways on how to save income tax is nothing but the following reduction under the Income Tax Act that any individual can claim. Interest received on savings accounts is tax-free up to Rs 10,000 per year which falls under Section 80 Total Tangible Assets. This limit is decided by Rs 50,000 for senior citizens for FD as well as savings account interest that falls under Section 80 Telegraphic Transfer Buying rate.

National Saving Certificate

A National Savings Certificate is an easy approach on how to save income tax  and comes with a fixed rate of interest as well as has a tenure of 5 years. The interest received on NSC is counted as a tax saving option as well as up to Rs 1.5 lakh amount can be taken as a rebate under section 80C.

Pay for health insurance

The government provides relief while providing you tax rebate for the premium you pay for yourself as well as your family. As per Section 80D, taxpayers are allowed to get a rebate of up to Rs 25,000 for family and another Rs 25,000 for parents. For senior citizens, this limit has been set up to Rs 50,000.

Contribute a bit too charitable institution

Being Indiviuals, we are here to assist each other, contributions made on charitable trust and respite funds are reductible under Section 80G. But you have to keep in mind that all reductions are not covered under Section 80G.

Public Provident Fund (PPF)

Public Provident Fund is a decent option on how to save income tax. It is a government-established savings scheme that is available for the tenure of 15 years available in almost every bank and post office in India. The rate of the interest changes every quarter and the interest on Public Provident Fund is tax-free.

This is not the only exhaustive list, there are many more ways to save on your taxes. Amount of gifts as well as inheritance from a will or property are relieved from tax. Even acquiring medical insurance can be beneficial for you as well as your family. Along with that, if you are a business person, then you can use your travel and food expenses to save on tax, and tax reduction can be claimed on it.

While planning your investment, you should always remember that not all sorts of tax savers are the same in terms of the asset class. You should be careful while choosing the instrument that best suits your needs. The liquidity, security as well as safety of the instrument should be taken into consideration. Your aim should be saving on taxes as well as to achieving a different set of financial goals that you have set for yourself too.

You can use PPF calculator to check how to save tax.

Education Loan

Under section 80E of the Income Tax Act, individual taxpayers who may have taken an education loan for higher education, themselves, their spouse, or their children can claim reduction on the repayment of interest on the loan. Although, the reduction is not allowed on the principal component of the loan, and the time period for this reduction is 8 years, which either begins from the time the repayment period starts or when the interest amount is repaid in full.

Standard Reduction on Employee’s Salary

While calculating the tax liability of all the salaried employees, the employer takes into consideration a standard reduction of up to Rs. 50,000, which is accessible while filing income tax returns (ITRs). Employees must also consider the standard reduction while calculating their total tax liability while planning their taxes for Financial Year 2020-21.

Taxpayers can choose not to invest in new tax-saving instruments for various reasons, and can still save tax on certain expenses that are eligible for a tax reduction. With proper planning, taxpayers can avail reductions on the expenses mentioned and can save tax with no investment during the financial year.

Conclusion

Before selecting a tax-saving instrument, consider the risk level, lock-in time, liquidity, and returns. It’s pointless to choose a tax-saving product if it doesn’t meet your specific needs. It also aids in keeping up with the most recent trends in tax-saving provisions. Many taxpayers are unfamiliar with the other provisions of the Income Tax Act that they can use to substantially minimize their tax burden, with the exception of Section 80C.

Our specialist services atWealthBucket will help in for the choosing best schemes and mutual fund schemes to save your tax hassle-free. Our company only believes in over-delivering our clients when you want to invest inequity fundslarge-cap fundsliquid funds or multi-cap funds & many more. You can either reach us at +91 8750005655 or mail us at contact@wealthbucket.in.

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