There are several ways to lower your taxable income under Indian law. However, the majority of taxpayers are aware of and make use of the Section 80C deduction of up to 1.5 lakh.
Nonetheless, every taxpayer may further lower their tax burden by being aware of the numerous additional tax savings options that exist. Besides the Section 80C deduction, we’ve compiled a list of 10 more strategies that might help you reduce your taxable income.
1) Tax saving with NPS under Section 80CCD (1B):
Additional tax savings of up to 50,000 are available to taxpayers who invest in NPS. This is in addition to the tax break they may get for making donations under Section 80c. In addition, they may use their NPS to contribute up to the Section 80c maximum of 1.5 lakh. The sum of these contributions will increase the maximum NPS deduction to Rs. 2 lakh.
2) Tax savings on Health insurance premiums under Section 80D:
There is a tax break for those who pay for their own health insurance. Health insurance premiums and medical expenditures may be deducted from your taxable income in accordance with Section 80D. If you want to deduct your premium payments from taxes under Section 80D, you should read the policy carefully.
Who is eligible for a tax deduction under Section 80D, and how much, will depend on the scope of the health insurance policy and the insured’s age. So, the maximum may be 25,000, 50,000, 75,000, or 1 lakh, depending on the taxpayer’s family size.
3) Tax savings on repayment of an Education loan under Section 80E:
It’s not uncommon for students to take out loans in order to attend college. Students who have borrowed money for school may deduct the interest they pay from their taxable income under Section 80E. Whoever begins making payments on the student loan is eligible for the tax advantage. This might be either the parent or the student.
Taking out a loan from a financial institution is the only way to qualify for this tax break, not borrowing money from family or friends. The deduction is available to taxpayers beginning in the year they begin making payments on their student loan and continuing through the next seven tax years, or until the interest is paid in full, whichever comes first. The amount of interest that may be deducted is unlimited.
4) Tax savings on Interest component of Home loan under Section 24:
In accordance with Article 24 of the Income Tax Act, the interest paid on a mortgage is deductible by the homeowner. Here, a taxpayer may deduct up to 2 lakhs (about $30,000) of interest payments made on a house loan used to purchase a primary residence.
If the house you’re financing isn’t your primary residence but is instead leased or treated as rental for tax purposes, you may deduct the full amount of interest paid each year under Section 24.
However, the maximum amount of tax deduction possible under Section 24 is capped at 2 lakhs if the borrower (homeowner) is unable to occupy the property owing to job, business, or profession carried on at any other location.
5) Tax savings on interest repayment on Home loan for first-time owners under Section 80EE:
Tax deductions of up to 50,000 are available under Section 80EE for first-time homeowners who qualify (you must have owned any other residential property on the date of the authorization of a loan from a financial institution). The ceiling for interest payments on a house loan under Section 24 of the Income Tax Act is 2 lakh, hence this amount is in excess of that.
This deduction is only available if both the loan amount and the value of the home are below 50 lakh and 35 lakh, respectively. This subsection was originally made available for use during the 2013–14 and 2014–15 fiscal years. The 50,000 yearly limit has been in place since 2016–17, when this provision was reinstated, and the tax advantage is effective until the loan is returned.
6) Tax savings on rent paid in cases where HRA isn’t paid under Section 80GG:
Salary employees who do not get HRA because they are self-employed or work in the informal sector may deduct up to 60,000 each financial year from their taxable income as a result of paying rent under Section 80GG. Renters in the same city as homeowners are not eligible for this deduction. Taxpayers who own a residence in one municipality but who deduct interest paid on a loan for a different property under Section 24 are not eligible to utilise this provision.
The 60,000 reduction permitted by this clause is based on the least favourable of the following three scenarios:
a) At least 25% of the total income, excluding any capital gains. This will be ₹ 1.5 lakh on an annual income of ₹ 6 lakh.
b) Actual rent minus 10% of income. This would be ₹ 84,000 if you were paying ₹ 12,000 monthly rent (₹ 1.44 lakh – ₹ 60,000)
c) Or ₹ 60,000
7) Tax savings on interest earned from savings bank account under Section 80TTA:
Section 80TTA allows taxpayers (both individuals and HUF) to deduct a portion of their interest income from their taxes. Those who are not seniors and are considered “regular taxpayers” may read this. Taxpayers who are 65 or older may take advantage of the provisions of Section 80TTB. Bank or banking company savings accounts, postal savings accounts, or co-op society banking accounts are all viable sources of interest income.
If you have several savings accounts and earn interest on them, you may deduct up to a total of $10,000 under this provision. Interest earnings in excess of 10,000 are subject to taxation as “Income from Other Sources.” For example, if you earn a total of $12,000 in interest from three different savings accounts, you may deduct only $10,000 of that amount. The remaining $2,000 would be included in your “Income from Other Sources” category.
Section 80TTB, effective as of April 1, 2018, is intended to help retirees by reducing the tax burden associated with interest income. This is especially helpful for retirees who rely on interest on savings and deposit accounts as a source of retirement income. Deductions from gross income are permitted under Section 80TTB up to 50,000 or an amount from a defined income.
Bottom line:
While it’s important for taxpayers to be aware of opportunities to reduce their taxable income, doing so should not come at the expense of other financial obligations. For instance, getting a mortgage just because you can write it off on your taxes is not a good idea. Those who are in need of a home and will be taking out a loan to purchase one should look into tax deductions and other incentives that might help them pay off their mortgage faster. Therefore, take advantage of tax deductions where they are applicable to lower your income tax.
