- Date : 09/01/2023
- Read: 4 mins
Options to save tax on income
The 30% tax bracket is the most taxing of all, as it levies the highest tax rate on your income. You have to part with almost a third of your income on taxation, which reduces your disposable income. However, thanks to the tax-saving provisions of the Income Tax Act of 1961, there are various options for reducing your tax liability, especially if you are in the highest bracket of 30%. Let’s understand what these options are –
Tax-saving options for taxpayers
Section 80C
The most popular and widely used tax-saving section is Section 80C. It allows deductions up to Rs.1.5 lakhs from your taxable income. Thus, if you are in the 30% tax bracket and claim deductions up to Rs.1.5 lakhs under this section, you can save up to Rs.45,000 in tax liability.
The eligible deductions under Section 80C are as follows –
- Life insurance premium paid (up to 10% of the sum assured)
- Home loan principal repayment
- Stamp duty and registration charges paid for a house property
- 5-year fixed deposits
- Equity Linked Saving Scheme (ELSS) of mutual funds
- Public Provident Fund (PPF)
- Employees’ Provident Fund (EPF) contributions
- Tuition fee paid for children (up to two children)
- National Saving Certificate (NSC)
- Senior Citizens’ Saving Scheme (SCSS)
- Sukanya Samriddhi Yojana (SSY), etc.
Section 80D
This section offers a deduction for the health insurance premium paid. You can claim a deduction of up to Rs.25,000 if you are below 60 or Rs.50,000 if you are a senior citizen. Moreover, if you pay the health insurance premium for your parents, you can claim an additional deduction under this section. The additional deduction limit will be Rs.25,000 if your parents are below 60 or Rs.50,000 if they are senior citizens.
Thus, assuming you are eligible for a deduction of Rs.50,000 for yourself and another Rs.50,000 for your parent’s health insurance premium, you can claim a total deduction of Rs.1 lakh and save up to Rs.30,000 (30% of Rs.1 lakh) in taxes.
Section 80CCD (1B)
This section is especially helpful if you invest in the National Pension System (NPS) scheme. While NPS contributions are eligible under Section 80CCD, which falls under Section 80C limit of Rs.1.5 lakhs, Section 80CCD (1B) allows for an additional deduction. NPS contributions up to Rs.50,000 can be claimed as an additional deduction under this section allows you to save a tax of Rs.15,000 (30% of Rs.50,000).
Section 80TTA and 80TTB
Savings account interest is allowed as a deduction under Section 80TTA up to Rs.10,000 for taxpayers below 60 years of age. In the case of senior citizens, interest earned on savings accounts and fixed and recurring deposits also qualifies as a deduction. This deduction is allowed under Section 80TTB up to Rs.50,000.
Tax benefits on home loans
While home loan principal repayments fall under Section 80C, the interest component is also allowed as a tax-saving deduction. Interest up to Rs.2 lakhs is allowed as a tax-exempted expense under Section 24 (b).
Tax benefits on electric vehicles
If you buy an electric vehicle and use a loan for the same, you can claim a tax deduction on the loan interest paid. Interest paid up to Rs.1.5 lakhs is allowed as a deduction from your taxable income under Section 80EEB. This newly introduced section grants tax benefits for buying electric vehicles.
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So, use these tax-saving sections of the Income Tax Act, 1961 and save tax on your income. Try bringing down your taxable income to the lower tax bracket of 20% so you can save taxes and channel the saved money towards your investments.
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