Every individual wish to increase his or her income but at the same time also wishes to reduce their income tax. There are several of ways through which you can save income tax in India which will help you in getting exemptions on taxable income. You might be aware of some of the tax saving tips but you might not be aware of the the ways to save income tax. Saving income tax will ultimately result in increasing your income.
Government has now come up with several tax saving schemes which will save your income from paying taxes on them. The IT Department of India also offers several of deductions with which you can avail tax benefits and save income tax. Well it is very important to design your tax planning schemes in order to save income tax. For deductions in your income tax, it is important that you use various tax instruments available.
27 Best Ways To Save Income Tax in India
Here are 27 best ways through which you can save tax in India. Use them carefully to enjoy maximum deductions on tax payable.
1. Interest Amount on Saving Account
Well, you might not be aware about the fact that interest amount on saving account saves tax. The interest amount up to Rs. 10,000 is completely exempt from tax. For example, if you earn 20,000 rupees in the form of interest on your saving account then you will have to pay tax on Rs. 10,000 only.
2. Interest Income on NRE Account
Indian government has designed very friendly policies for NRIs. If you have NRE account then you will never have to pay interest amount on fixed or saving account. Most noteworthy point is that income earned on saving or fixed account on NRE account is completely tax free in India. NRE account holder have to pay tax in their residing country.
3. Maturity Amount by Life Insurance
According to the amendments in Finance Act, 2003,” any amount received at the end of the maturity of life insurance is completely tax free only if the premium of the policy doesn’t exceed 20% of the sum assured.” On the other hand, if the premium paid is lower then the 20% of the sum assured then the entire earning will be taxable.
4. Educational Scholarship
Any amount received in the form of educational scholarship is tax free. No matter whether you receive that scholarship from government or the private institution or trust.
5. Profit from Selling of Shares or Equity Mutual Funds
If you earn profit from selling of your shares in equity mutual funds then the amount received is not taxable. However availing tax benefit needs you to hold that shares or equity for at least one year. For example, if you invest 2,00,000 in stocks. After 11 months, you earn profit of rupees 30,000.
Now if you sell those stocks after a period of 11 months then you will have to pay tax on your profit of Rs. 30,000. However if you have hold shares for 1 year i.e., just for 1 month more then, your entire profit will be 100% tax free. So, if you want to save tax on the profit earned from selling of shares, you need to hold the share for atleast 1 year.
6. Dividend Received from Share or Equity Mutual Fund
Companies distribute dividends almost every year. But do you know that the dividend received by the shareholders is completely tax free? Since companies pay tax on the profits made by the company due to which dividends received by the shareholders becomes completely tax free.
For example, you have make investment of rupees 1,00,00 and receives 2000 as dividend. The dividend income is completely tax free no matter for what time you are holding the shares. This is another way through which you can save income tax in India.
7. Avail Tax Benefits on Money Received from Provident Fund
If you wish to avail tax benefits then you must invest your money in Provident Fund. Since provident fund or on employee’s provident fund is for 5 years hence you will save income tax on the profits received. But if in case if you withdraw your money from employee’s provident fund or provident fund before 5 years then you will have to pay taxes on the interest received.
Example, if you invest 1,50,000 Rs in provident fund for 5 years at an interest rate of 7.1% then you will approximately receive 2,50,000 Rs. Now if you withdraw your money before 5 years then your money received is taxable while if you withdraw your money after 5 years then total amount received is completely tax free.
8. Amount Received as Gift on Marriage
Do you know that amount received as gift on marriage is completely tax free? These gifts can either be in form of cash, cheque or in kind. Hence you can easily take gifts from your family, relatives and friends on your wedding and will not have to pay tax on the amount received.
9. Inherited Amount Through Will
Well there is no law in India for inherited income. So if you ever get certain amount by your parents or grandparents or even by your relatives. This money will not be taxable under law.
10. Agriculture Income
Any income generated from agricultural land, commercial product from agricultural land is tax free. Section 2(1A) defines agricultural income:
- Save tax on any income received through rents or lease of any agricultural land in India .
- Avail tax benefits on income generated from the sale of the products sold generated from the agricultural land.
- Save income tax on amount gained from farm building.
11. Income from Gratuity
Gratuity is the amount received by an individual at the end of his retirement, termination, or amount given to any widow, children or dependents on the death of the gratuity holder. The gratuity income is non – taxable upto 3,50,000.
12. HUF Account for Secondary Income
You can save tax on HUF account if you have any additional income source of income. Well it is very clear that you will have to pay tax on the your basic salary but you can save income tax on secondary income by depositing it in HUF account. HUF stands for Hindu Undivided Family in which Hindu, Jain and Sikh families can open their account by simply presenting their PAN Card and account number. There is completely a different taxation system for HUF, as IT department in India considered it a separate entity.
Example, lets say that your monthly income is 5,00,000 and your secondary income is 3,50,000. Now you will have to pay tax of 2,50,000 on your primary income and 1,00,000 on your secondary income. However you can save tax of 1,00,000 if you invest it in non taxable instruments under Section 80 C.
13. Tax Saving Tips From Home Loan
Do you know, you can save income tax in India in home loans as well. You can take different home loans and the benefits that you will receive will be similar. Since their are some exemptions on taxable income if you take house loan, 3 of them are listed below:
- Principal amount re-paid in the current accounting year is also included under section 80C which offers you a deduction of about 1,50,000.
- Separately you get deduction of about 2,00,000 on interest portion under section 24.
- First time house loan buyers get additional benefit of about 50,000 under section 80EE.
14. Tax Saving Tips From Educational Loan
Under Section 80E,” Interest paid on educational loan is non-taxable as well as there is no upper limit on the amount. Well you will get exemptions on taxable income if educational loan is taken for children, spouse or any other dependents.
15. Medical Insurance
Go for medical insurance and save income tax. Since medical insurance offers you tax benefits on the basis of the medical insurance premiums paid. You will be allowed to claim a deductions on tax up to Rs. 25,000 in a budgetary year. It is not necessary that you need to have medical insurance of your own but actually medical insurance can be of any dependents.
In addition to this, if you have any dependent having medical insurance and is above 60 years and the claim limit increases to Rs. 30,000. While for tax exemption you need to pay premium via online banking, cheque, draft, credit card or debit card. If you pay premium via cash then you will not receive any tax benefits.
16. Save Tax via Medical Bills
Keep all your medical bills carefully and claim for exemptions on taxable income at the end of accounting year. All you need to do is present the medical bills. Furthermore, it is important to know that up to 15,000, medical expenses are not taxable. These medical expenses can either be yours or of any dependents.
17. Telephone and Internet Expenses
Switch to a smart habit and start tax saving by claiming tax benefits on internet and telephone expenses. In case if your company doesn’t offer tax benefit then ask them to reimburse your telephone or internet expenses.
18. Save Tax via Donations
Under IT Act, Section 80G provides that any donations made by an individual to a recognized organization also provides to exemptions on taxable income. You can made donations to any specific funds or charitable institutions. Just get stamp receipt of the donation made by you from the charitable trust or institution to get exemptions on taxable income.
19. Leave Travel Allowance
Leave Travel Allowance is kind of allowance in which you can avail tax benefits. So, if you go on a trip with your family. All the expense that you do can be made tax free. But the condition is, under Leave Travel Allowance you can take your spouse, two children, parents and your brother and sister if they are dependent on you.
This facility can be availed twice in the time frame of every 4 years. If due to any reason you were not able to avail the facility then it will automatically carry over to the next block. Most noteworthy point is that this allowance will only account domestic vacations but international vacations as well. One can easily present his or her travel, accommodation bills and exemptions to avail the tax benefit.
20. Save Tax via Daily Travel Allowance
Daily Travel Allowance is given to employee to compensate his or her traveling cost from the house to the office. There is no limit on the payment of daily travel allowance by the employer to the employee. But there is certain exemptions on the employee end like annually 19,200 is exempt from tax which means 1,600 per month.
Best part of this allowance is that you need not have to present any proof’s in order to avail tax benefits. While there are certain companies which ask you present your monthly fuel bills to avail tax benefits if you travel via your bike or car. So just present your fuel bills and save tax .
21. Save Tax via House Rent Allowance
Claim for house rent allowance in order to save income tax on your house rent. HRA is only applicable for those employees who do not have their own house or if your office is away from your house. You must get your rent receipt from your landlord in order to claim for HRA. In case if your house rent increases more than 1,00,000 annually then you must give a copy of your PAN Card to your landlord.
Since HRA is a part of your salary hence minimum of three options are available in order to exempt the tax on HRA –
- Actual HRA received from the employer.
- Actual rent paid by you must be minimum of 10% of your salary.
- Minimum HRA payable must be 50% of your salary in metro cities and 40% of your salary in non-metro cities.
22. Meal Coupons Best Tax Saving Tips
Under IT Act, their is certain clause for Meal Coupons which states, “Provided that nothing contained in this clause shall apply to free food and non-alcoholic beverages provided by such employer during working hours at office or business premises or through paid vouchers which are not transferable and usable only at eating joints, to the extent the value thereof either case does not exceed fifty rupees per meal or to tea or snacks provided during working hours or to free food and non-alcoholic beverages during working hours provided in a remote area or an off-shore installation.”
Hence if you wish to save income tax on the meal then go for the prepaid meal coupons offered by the company. It is very important to note that the monthly meal coupon value exempt from tax is only 2,600 Rs i.e., 50 x 2 (times a day) x 26 (working days ) = 2,600 Rs.
23. Save Tax via Car Lease
Another amazing way to save income tax in India is by choosing company leased car option. These days company leased car is getting very popular among the high salaried employees. Since in this option you can buy of any model and price depending upon the employee salary and companies policy. Benefits of car leasing is that you will not have to take care of maintenance and insurance of the car.
Employees can use the car for both personal as well as professional usage. Employee will have to pay monthly leasing amount to the company. It is comparatively lower than the EMI amount that you have to pay to banks.
For example, if an individual falls under 30% tax slab and pays monthly lease amount of 20,000. Then the employee will automatically save 6,000 on tax ie., 30% of 20,000 which is automatically lower then the monthly lower than EMI given to the bank, if you buy car on your own.
24. Save Tax on Travel and Hotel Expenses In Business
Since the businessmen or the owners need to travel different locations in order to grow their business. Hence they can showcase their hotel and traveling expenses as business expenses in order to save tax. Since business owners never pay for their traveling or hotel expenses form their salary it is always shown in companies account. Some smart businessmen show all these expenses before paying tax so that they can save tax.
For example, business makes profit of 10,00,000 Rs. out of which the 2,00,000 Rs is spend on the traveling. Hence the amount on which the company will pay tax is 8,00,000 Rs. In conclusion, mention all your traveling and hotel expenses in business expenses to save tax.
25. Tax Saving Tips is Distribute Profit To Partners In Partnership Firms
If you have your partnership firm then you will get tax benefits. For example your partnership firm makes profit and you decide to distribute profit among your partners. Then non of the partners will have to pay additional tax on the amount they will receive. As the partnership firm would have already paid tax on the profit made. So partners will not have to pay double tax on the same income. Hence it is another tip to save income tax.
26. Avail Tax Benefits via Money Under VRSin
If any individual takes Voluntary Retirement Scheme from any state or central government establishment or from any public sector organization. The amount received up to 5,00,000 Rs is completely tax free and individual will pay tax on higher amount. So the higher amount is taxable in the hand of employee under the head salary. Hence money under VRS is another tax saving tips.
27. Avail Tax Benefits via Items Under Section 80C
Save your income from paying tax up to Rs 1,50,000 is Section 80C which offers maximum deductions. A number of ways are mentioned under Section which will prevent you from additional paying tax:
- Life Insurance Premium
- Public Provident Fund
- Equity Linked Savings Scheme
- National Savings Certificate
- Principal amount Repaid on Home Loan
- Tuition fees paid for child education, up to maximum of 2 children
- 5 years fixed deposit with banks and post office
I hope this article is helpful for you. Now apply these tips on your day to day life and save income tax. Do not ever choose wrong ways to avoid income tax. Instead go for all the legal ways and save income tax for yourself.