Income tax is the tax that is paid by any taxpayer on the income received other than companies such as by an individual or a Hindu Undivided Family. The generated revenue is vital for the smooth functioning of the country as the government needs these funds to foster economic growth and development. The tax varies as per the tax slab in India.
Under the Income Tax Act, 1961there are certain ways to save tax that entail some of the tax-saving mutual funds, NPS, insurance premiums, medical insurance, home loan, and many others. Whether a salaried individual, a freelancer, a business owner or earn an income from investments, taxes paid to the government as per the Income Tax Act.
As the Central Board of Direct Taxes (CBDT) facilitates the more intricate tax collection and related services, individuals should develop an idea regarding how to save tax in India subject to the income tax slab applicable.
The additional education and health cess at 4% of the total tax payable are levied. A surcharge of 10% of the total income also has to be paid by people earning higher than 50 Lakh annually. Such cess rises to 15% when the income is higher than 1 Crore.
The Central Government maintains various provisions under the Income Tax Act of 1961, to ease the annual financial burden.
This section of the Income-tax Act,1961 includes multiple investments and expenses options that can claim deductions – up to a limit of Rs. 1.5 lakh in a financial year. There are some of the best options to save tax available to individuals and HUFs in India.
Ways to save tax u/s 80(c) of the IT Act:
1. Equity Linked Savings Scheme
It is a type of mutual fund which comes with a lock-in period of 3 years. The only category of mutual fund in India, that qualifies for a tax deduction. Returns provided by ELSS are higher than other tax-saving schemes in the long run, as the investments are primarily made in equity markets. Investment can either make in a lump sum amount or the SIP (Systematic Investment Plan) method.
2. PPF (Public Provident Fund)
PPF is a long-term government savings scheme with a tenure of 15 years. This scheme is available at most banks and post offices in India. The interest on PPF is tax-free. The rate changes every quarter and its rate as of July, August, and September 2020 are set at 7.1%.
3. National Savings Certificate
An NSC provides a fixed rate of interest which is currently @ 6.8% p.a. & has a term of 5 years. The interest received is considered as a tax saving option and up to Rs 1.5 lakhs can be taken as a rebate.
4. Tax-Saver FDs
A tax deduction of up to Rs 1.5 lakhs can be availed under 5-year tax-saver FDs. They carry a fixed rate of interest which is currently between 6-8% & the interest on these FDs is taxable as per the investor’s tax bracket.
5. Senior Citizens Savings Scheme
This is a government-backed tax-saving investment and long-term savings option. It has a lock-in period of 5 years and for those who are above 60 years of age and provides a rate of 7.4% (taxable).
6. Sukanya Samriddhi Yojana
Those who have a girl child below the age of 10 can benefit from this SSY scheme. Investments made towards this are eligible for a tax deduction of up to Rs. 1.5 lakhs. This account has a lock-in period of 21 years or until the girl gets married after turning 18. The current interest rate is set at 8.5% and the interest earned is tax-free.
7. Employee Provident Fund
Under the EPF Act. 12% of the part of employees’ salary in the organized sector is deducted from the Employees Provident Fund. This deduction is also counted towards the Rs 1.5 lakhs limit.
8. Home Loan Repayment
Those who have taken a home loan can claim tax for the part of EMI that goes towards repaying the principal amount. The amount that is paid as interest, however, does not qualify for tax deductions.
9. Tuition Fees
Tax deductions of up to Rs. 1.5 lakhs can be claimed on tuition fees paid for your child’s education. This benefit is only for the individual parents or guardians with a maximum of two children per individual. Parents who have adopted children, unmarried individuals, and divorced parents can also claim these benefits.