- Date : 22/05/2021
- Read: 5 mins
With two tax regimes to choose from, here’s what you can do to save taxes.
For Financial Year 2021-22, you can plan your taxes keeping one of two regimes in mind. If you opt for the old regime, various tax exemptions can be claimed on your salary components, including house rent allowance (HRA), transport allowance, child education, hostel subsidy, interest on home loans, etc.
Additionally, deductions are available under the following sections of the Income Tax Act:
Section 80C, 80CCC and 80CCD (Maximum benefit Rs 1.5 lakh)
Tax saving investments can be made under various options specified as deduction under section 80C of the Income Tax Act. It includes tax saving options like payment of life insurance policy, investment in 5-year bank fixed deposits, Public Provident Fund, Unit-Linked Insurance Plan, National Saving Scheme, Sukanya Samriddhi Yojana, Senior Citizen Savings Scheme, National Pension System, home loan principal payment, Equity-Linked Savings Scheme etc.
Pension fund contributions in a life insurance annuity plan are available as a deduction under section 80CCC. Pension fund of the central government also qualifies for deduction under Section 80CCD.
Section 80D (Maximum benefit Rs 1.05 lakh)
Premium paid on medical insurance is deductible up to Rs 1 lakh if both taxpayers and parents are above the age of 60. Additional deduction of Rs 5000 is allowed for health check-up of spouse, parents and children. Deductions under section 80D are available up to Rs 25,000 for taxpayer, their spouse, and children. An additional deduction of Rs 25,000 is available for parents below the age of 60, and Rs 50,000 for parents above the age of 60.
Section 80DD (Maximum benefit Rs 1.25 lakh)
A deduction of Rs 75,000 is available for the nursing, training, and rehabilitation expenses of a dependent handicapped relative with 40%-80% disability. If the disability is more than 80% the deduction increases to Rs 1.25 lakh.
Section 80DDB (Maximum benefit Rs 1 lakh)
A deduction of Rs 40,000 is available for the treatment of your or your dependent’s specified medical conditions. The deduction is Rs 1 lakh if the treatment is for a person above the age of 60.
Section 80TTA (Maximum benefit Rs 10,000)
Under this section, you can claim a deduction of up to Rs 10,000 on the interest earned on your savings account with a bank, cooperative society, or post office. The income should be disclosed under ‘Income from Other Sources’.
Section 80GG (Maximum benefit Rs 60,000)
If you pay rent but HRA is not part of your salary, you can claim deduction under this section. The maximum deduction is calculated as per the prescribed formula and can be up to Rs 5000 per month.
Section 80E (No limit on maximum benefit)
Deduction can be claimed on the interest paid against an education loan taken for higher studies. The higher studies could be pursued by you, your spouse, your children, or a legal ward.
Section 80EE (Maximum benefit Rs 50,000)
A deduction of up to Rs 50,000 can be claimed on the home loan interest portion if you are a first-time homebuyer. As an extension to sec 80EE, Section 80EEA has been introduced with a benefit of Rs 1.5 lakhs on home loan interest, from AY 2020-21.
Section 80U (Maximum benefit Rs 1.25 lakh)
A deduction of Rs 75,000 is available to the resident individual suffering from a physical disability, including blindness and mental disability. In case of severe disability, the deduction allowed is Rs 1.25 lakh.
Section 80G (No limit on maximum benefit)
100% deduction without any qualifying limit can be claimed for donations given to specified social causes. On three other categories, a 50% deduction on specified donations, 100% deduction subject to 10% of Gross Total Income (GTI), and 50% deduction subject to 10% of GTI respectively are available.
Section 80GGC (No limit on maximum benefit)
A contribution made to a political party is eligible for deduction provided the contribution is not made in cash.
Section 80RRB (Maximum benefit Rs 3 lakh)
You can claim a deduction on an income of up to Rs 3 lakh received by way of royalty of a patent.
Section 80TTB (Maximum benefit Rs 50,000)
Interest of up to Rs 50,000 earned on deposits by senior citizens can be claimed as a deduction.
Section 24 (Maximum benefit Rs 2,00,000)
Deduction under section 24 is available on interest payments on home loan for up to Rs 2 lakhs. Assessees eligible for both Sec 24 and Sec 80EEA may use the deduction under 24 first, and then claim the benefits under sec 80EEA.
What if you opt for the new tax regime?
If you opt for the new tax regime, you will not be able to claim around 70 tax saving schemes, exemptions, and deductions that are available under the old regime. This will increase your taxable income. However, the income tax saving due to lower rates in the new regime compensates for the absence of tax deductions and exemptions. Look at these 5 Tips to invest wisely under the new tax regime.
Among the deductions that continue to be available even under the new regime are:
- Employer’s contribution towards NPS and EPS.
- Interest on EPF up to 9.5%.
- Gratuity receipt is exempted under the new regime, with a limit of Rs 20 lakh in the case of non-government employees.
- Interest earned on a post office savings account.
- Life insurance maturity amount.
- PPF and Sukanya Samriddhi Yojana interest income and maturity amount.
- The lump sum amount received on maturity of an NPS account.
- Leave encashment receipt of up to Rs 3 lakh in case of non-government employees.
- Voluntary retirement monetary benefits up to Rs 5 lakh.
You can compare your tax liability under both regimes to find out which will save you more taxes. Once you identify the suitable regime, you can make relevant investments to maximise your tax savings. New tax regime vs old tax regime: Should you switch?