How To Save Your Income Tax?

Fri, 10 Jun 2022 14:05:07 +0000

The Buyt Desk

We work, work more and even more to grow our income so that we can live a comfortable life. More income doesn’t only mean more money but it also results in more tax. As our income touches the new milestones, the tax slab also does, and in the absence of careful tax planning, we end up paying a decent portion of our income in tax.

Paying tax is not bad but when there are ways to save some in the right manner then why not. The Income Tax Department has given citizens many options to save on tax. Here is a list of various provision of the Income Tax Act that will help you in saving tax–

National Pension System (NPS) Section 80 CCD (1B) – NPS is a popular investment option for those who want to save tax and plan for retirement. The scheme is for everyone and helps you save additional Rs 50,000 tax if you have used the 80C limit.

Education Loan Repayment – If your child is pursuing higher education, you can use his fee as a tool to save tax under section 80E. You can take an education loan and use the interest component of the loan to avail tax deduction. There is no limitation for claiming the deduction for paid interests. However, the point to note is that you can use the benefits of this option only when you take the loan from a recognized financial institution, and there will not be any benefit on the principal amount paid.

House Rent Allowance – If you live in a rented house, the rent you pay also helps you save tax under section 10 (13A). It is not for those who live on their property. Also, the option is not for those who opted new tax regime to pay tax, and whose employer pays HRA after all tax calculations.

Interest Earned on Saving Account – Section 80TTA allows you to claim tax deductions up to Rs 10,000. It applies to all the interest earned from different accounts, and Rs 10,000 is the maximum.

Home Loan – The home loan can also help you save tax under section 24 (B). You can save tax on the interest component of your home loan. You can take advantage of an interest deduction of up to Rs 2,00,000. You can use this option to save on tax no matter whether you are using the property or not.

However, to get all the benefits, you have to make sure that the construction of that property completes within five years of borrowing the loan. Otherwise, the deduction will reduce to Rs 30,000.

First Time Buyer Home Loan – If you are buying a property for the first time, many options are present that allows you to save tax. First, section 24 (B) lets you save tax on interest up to Rs 2,00,000. Second, section 80 C gives you the benefit of saving tax of Rs 1,50,000. Beyond that, the first-time buyer also gets an extra tax deduction of up to Rs 50,000 on the interest component. However, there are eligibility criteria for the same.

You cannot buy other property till the last date of the home loan sanction.
The loan amount should be less than 35 Lakhs.
The value of the home should be less than 50 Lakhs.

Premium Of Health Insurance – Buying health insurance for loved ones is a token of love. And this also gives you tax benefit under section 80 D. Tax deduction benefit is available when you have taken health insurance for yourself, your spouse or children. It is not eligible for your sister or brother-in-law.

Charity and Donation – Donations can also help you save tax under section 80G. However, the donation above Rs 2000 comes under the category. If you are donating through other ways, such as cheques or gifts, you can claim 50 or 100% of the donation. A donation of 100% deduction is subject to 100% of gross total income under section 80G.

The deduction claims for donations made for rural development or scientific research come under 80 CGA. It is not for donors having income/loss from profession/business.

Treatment of Specific Illness – Section 80DDB allows the taxpayer to claim a deduction on tax liability while filing ITR, if the taxpayer himself or any dependent is getting a costly treatment. For self, the deduction limit is up to Rs 40,000 and for a dependent, it can go up to Rs 1,00,000. However, one has to produce proof of treatment to claim the deduction.

Conclusion – Tax planning is imperative as it reduces tax liability. The tax saving option helps with saving tax. Choose these investment options only when there is a need for them.

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If You are Interested in a Tax Saving Cum Investment Instrument then Tax Saving FDs could be Your Answer

Sun, 21 Mar 2021 14:42:58 +0000

The Buyt Desk

As the name suggests tax saving Fixed Deposits(FD) are the investment that saves your tax. This deposit scheme gives you the benefit of tax deduction under Section 80C of the Income Tax Act, 1961. An investor can claim a deduction of up to Rs 1.5 lakh in a year. Tax saving FDs guarantee you a fixed return over a fixed tenure. These FDs are exactly the same kind of fixed deposit that banks provide but the two biggest differentiators are that they provide a tax deduction and have a strict lock-in period. The interest rate for a tax saving FD ranges from 5.5- 7.5%.

Lock-in period of Tax Saving FDs

If you invest in a tax-saving FD then be prepared for a 5 to 10 year lock-in period. The tax saving instruments have a mandatory lock-in time. Tax Saving FD does not allow premature withdrawal. These FDs are strict about partial withdrawal too. Once the investment begins you cant opt-out midway. You have to continue with the plan till the pre-fixed maturity date.

How much can one invest?

Tax Saving FD can be opened in private or public banks. Banks have been facilitating online as well as offline service for starting an FD. The maximum limit that one can invest in a year is up to Rs 1.5 lakh. The minimum amount that you require to open a tax-saving FD could differ from bank to bank but most of the bank have Rs 1000 as the minimum required amount. Though in rural areas the minimum required amount could be of less than Rs 1000 as well. Do keep in mind that investment in a tax saving FD can’t go beyond the upper limit of Rs 1.5 lakh as that’s the tax deduction that one can claim on this investment.

Tax Liability

The interest of Tax saving FD is fully taxable as per the investor’s tax slab. The interest income is considered under the ‘Income from other Sources’ head. The banks will deduct the tax at the source automatically. If your income is not taxable then you can avoid TDS by submitting Form15G( or Form 15H if you are a senior citizen) to the bank.

Points to Note

No loan facility is allowed on tax saving FD. One can not avail loan against these FDs.
There is a provision of nomination in tax saving FD and investors can nominate their representative to receive the benefits in case something happens to the primary holder of the FD. Though if the account is being held on behalf of a minor then a nomination is not allowed.
The investor must ensure that his/her PAN card is linked to the savings account because right after the FD matures the amount is transferred to the bank.

Conclusion

Tax saving FD gives you a slightly higher return on your deposit as compared to other FDs as they have a tighter lock-in with no partial or premature withdrawals. If you are unable to make payment in between then also you will not be allowed to withdraw your money. You will have to wait until the lock-in period ends. You want to save tax and want higher guaranteed returns then tax saver FDs something that you should definitely look at.

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