- Date : 11/04/2022
- Read: 7 mins
Union Budget 2022-23 did not announce any changes in the tax slabs or tax deductions and exemptions. This article discusses some ways of saving income tax.
The current financial year 2022-23 has just started. Union Budget 2022-23 did not announce any changes in the tax slabs or tax deductions/exemptions. So, we will discuss how you can save tax this financial year if you did not fully utilise the tax deductions last financial year. This article will focus on nine ways to save income tax.
1) Section 80D: Health insurance premium
The COVID-19 pandemic has made us all realise the significance of health insurance. So, if you have still not bought health insurance for yourself and your family, this is a good way to start your income tax planning journey for the current financial year.
a) Premium for the family: When you pay a health insurance premium for self, spouse, and dependent children, you can avail of a deduction from taxable income. The maximum deduction allowed in a financial year is the premium amount or Rs. 25,000, whichever is lower. If you or your spouse are a senior citizen (age 60 years or more), the maximum deduction allowed is Rs. 50,000.
b) Premium for parents: When you pay the health insurance premium for your parents, you can avail of a deduction from taxable income. The maximum deduction allowed in a financial year is the premium paid or Rs 25,000, whichever is lower. If one or both parents are senior citizens (age 60 or more), the deduction allowed is Rs 50,000.
You can avail of a total deduction of Rs 1 lakh for family and parents, assuming you and/or your spouse are senior citizens and one or both parents are senior citizens. If you and your spouse are below 60, and one or both parents are senior citizens, the maximum deduction allowed is R 75,000.
2) Section 80TTA: Interest on savings account
The interest you earn on your savings account qualifies for a tax deduction. The maximum deduction allowed in a financial year is the interest amount or Rs 10,000, whichever is lower. The maximum limit applies to the aggregate of interest earned on all savings accounts. The savings accounts include those maintained with a private bank, PSU bank, foreign bank operating in India, co-operative bank, and post office. The benefit under this section applies only to individuals below 60 years of age.
3) Section 80C: Life insurance premium
Under Section 80C of the Income Tax Act, you can claim a deduction for the life insurance premium paid for yourself, your spouse, and your children. The maximum deduction allowed in a financial year is the amount of premium paid or Rs 1,50,000, whichever is lower. To avail of tax benefits, the ULIP premium should be paid for five years, and for other life insurance policies, the premium should be paid for two years.
Section 80C deduction benefit also applies to some other financial products. These include investment in ELSS, contribution to PPF account, and investment in a 5-year fixed deposit. These products have been discussed in the following section.
4) Section 80C: Investment in ELSS
As part of your financial planning goals, you can invest in an Equity Linked Savings Scheme (ELSS) for growth. ELSS gives you the dual benefit of wealth creation and tax saving. ELSS has a lock-in period of 3 years. It is suited for individuals with an aggressive risk profile and has the potential to give inflation-beating returns.
5) Section 80C: Contribution to PPF Account
In the above section, we saw how individuals with an aggressive risk profile can reduce their tax liability by investing in an ELSS. If you have a conservative to moderate risk profile, consider investing in a Public Provident Fund (PPF) account.
The PPF account is a part of the small saving schemes provided by the Government of India. It is a floating rate product wherein the government declares the interest rate quarterly. PPF has a lock-in period of 15 years. However, you can take a loan or make partial withdrawals, subject to certain terms and conditions. The returns on PPF are low to moderate and are tax-free on maturity.
6) Section 80C: Investment in 5-year fixed deposit
The 5-year fixed deposit is yet another investment and tax planning option for individuals with a conservative risk profile. You can open a tax-saving fixed deposit with a bank or a post office, with a lock-in period of 5 years. You cannot make a premature partial or complete withdrawal. Also, you cannot avail of a loan against this deposit. The returns are low to moderate. The interest is taxable, which further reduces the returns for those in a higher tax bracket.
7) Section 80EEB: Purchase of electric vehicle
An individual can avail of a deduction on the interest paid on a vehicle loan taken for purchasing an electric vehicle. The maximum deduction allowed in a financial year is the interest paid or Rs 1,50,000, whichever is lower. The financial institution should have sanctioned the vehicle loan between 1 April 2019 and 31 March 2023.
Also Read: Tax Benefits On E-Vehicles: How To Avail It?
8) Section 80E: Interest paid on an education loan
An individual can avail of a deduction on the interest paid on an education loan taken for pursuing their own higher education or that of a relative. You can avail the deduction for the loan tenure or a maximum of 8 years, whichever is lower. There is no limit to the interest amount that can be availed of as a deduction.
‘Relative’ in this context can mean spouse, children, or a student for whom the individual is the legal guardian. Higher education means any course pursued after SSE or its equivalent from a school, board, or university recognised by the government.
9) Section 80GG: Rent towards accommodation
An individual paying rent but not having a house rent allowance (HRA) as part of income can claim a deduction under Section 80GG. The annual amount that you can claim as a deduction is the lowest of the following three values:
(a) 25% of the adjusted annual income
(b) Rent amount minus 10% of annual income
(c) Rs 5000 per month (Rs 60,000 annually)
You will need to file Form 10BA for claiming this deduction under Section 80GG.
10) Section 24: Interest on home loan
An individual can avail of a deduction from taxable income on the interest paid on a home loan under Section 24 of the Income Tax Act. The maximum deduction allowed in a financial year is the actual interest paid or Rs. 2,00,000, whichever is lower. The individual can avail of the deduction if they have acquired the property with a home loan on or after 1st April 1999, and the property acquisition has been completed within five years of taking the home loan.
11) Section 80CCD: Contribution to National Pension Scheme (NPS)
An individual can avail of a deduction from taxable income for a contribution towards the National Pension Scheme (NPS) under Section 80CCD(1). The maximum deduction allowed for salaried individuals is 10% of their salary or Rs. 1,50,000, whichever is lower. For self-employed individuals, the maximum deduction allowed is 20% of income or Rs. 1,50,000, whichever is lower.
Under Section 80CCD (1B), an individual can avail of an additional deduction of up to Rs. 50,000 for a contribution towards NPS. The additional deduction of up to Rs. 50,000 is over and above the deduction of up to Rs. 1,50,000 allowed under Section 80C and 80CCD(1).
Under Section 80CCD(2), an employee can avail of an additional deduction for a contribution made by the employer to the employee's NPS account. The maximum deduction allowed is the amount contributed or 14% of salary for Central Government employees and 10% of salary for other employees, whichever is lower.
Many people wake up to tax planning only during the last quarter of the financial year (January-March) when they start getting email reminders from their HR Department about submitting investment proofs. As a result, they do tax planning in a hurry, which may not give the best results. It is always better to do your tax planning right from the start of the financial year to have ample time to evaluate the best tax-saving products for your profile.
Further, being an early bird gives you ample time to plan your investments in a staggered manner throughout the financial year if needed. Above all, bear in mind that early tax planning gives you peace of mind throughout the financial year!