Tax planning is considered important part of a financial planning whether you’re a salaried person, a businessman or a professional, by proper tax planning you can save taxes to great extent. Saving income tax requires proper tax planning.
The Financial year 2021-22 is about to end which will be assessed in the Assessment year 2022-23. This is also a good time where a person can plan about the tax saving schemes. There are quite a number of options available to taxpayers for deductions and exemptions, according to Indian laws, by which their tax liability can be minimised.
According to the Income Tax Act of 1961, there are a variety of provisions, such as exemptions and deductions, that may be helpful in reducing income tax liabilities. Tax deductions are available from Section 80C to 80U which are of great importance for taxpayers.
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Without proper knowledge, people go for tax evasion rather than going on tax planning. This article deals with the different provisions available to the individual for saving their taxes.
How to plan your taxes in India?
You will need to follow a step-by-step procedure for tax planning.
Gross Taxable Income Calculations.
Gross Taxable Income means Income from different Income Heads,
- Income from Salary +
- Income from house property +
- Income from profits and gains of businesses and profession +
- Income from long-term capital gains and short-term capital gains +
- Income from other sources
Post Office Interest Rates April–June 2022 on FDs, PPF, NSC, KVP, MIS, SCSS and SSY Schemes
Tax saving options- Now, let’s look at some of the common tax savings strategies that can lower your tax.
Section 80C, 80CCC and 80 CCD(1)
The maximum deduction of Rs 1.5 lakh is allow under section 80C, 80CCC and 80CCD(1). Investment in the following schemes are eligible for claiming deductions under these sections-
- Employee Provident Fund (EPF)
- Public Provident Fund (PPF)
- National Savings Certificate (NSC)
- 5 Year post office or bank saving account
- Sukanya Samriddhi Yojana
- Tuition fee of children
- National Pension System
- Life Insurance premium paid
- Post Office Senior citizen schemes
Section 80CCD (1B)
Under this section, an individual can claim deduction by investing in national pension scheme. The maximum limit for this deduction is Rs.50,000.
Section 80D ( Health insurance)
The purchase of health insurance plans enables one to save under section 80D of Income Tax Act. Individual can claim the premium paid for health insurance plans of spouse, parents and children. The maximum limit is as follows:
- For self, spouse and children (age < 60 yrs ) – Rs. 25,000
- For Parents – Father or mother or both (age < 60 yrs) -Rs. 25,000
- For self, spouse and children (age > 60 yrs ) – Rs. 50,000
- For Parents – Father or mother or both (age > 60 yrs) – Rs. 50,000
Section 80E (Repayment of education loan)
The deduction is available on the payment of interest on loan for higher education of self, spouse or children. The deduction is available only on interest on loan on payment basis. There is no maximum limit. Section 80E deduction is available for a maximum of 8 years (beginning the year in which the interest starts getting repaid) or till the entire interest is repaid, whichever is earlier.
Section 80EEA (Interest on Home Loan)
In addition to tax deductions under Sections 80C and 24b, a person can now claim deduction on interest on house loan up to Rs 1.5 lakh under Section 80EEA, subject to the conditions below;
- The property’s Stamp duty value should not exceed 45 Lakhs.
- Upon the date of the loan sanction, taxpayers should not own any other residential property.
- This tax benefit will be available from 1 April 2020 (AY 2020-21) and until the end of the home loan installment.
- Therefore, the total deduction for interest is now Rs. 3.5 lakh (Rs 2 Lakh + Rs 1.5 Lakh).
- The home loans should be taken from banks and approved financial institutions from 1 April 2019 until 31 March 2022.
Section 80EEB
Income Tax Deduction of Rs 1.5 Lakh on Loan taken to purchase Electronic Vehicle. Tax deduction on Loan taken to purchase Electronic Vehicle is available up to Rs 1.5 lakh. The loan to purchase an electric vehicle must be obtained from a financial institution or a non-banking financial company. From the period from 1 April 2019 till 31 March 2023, the loan must be sanctioned at any time.
Section 80G (Donations)
The donations towards certain charitable institutions, funds are considered for deduction under section 80G. The government has specified the institutions and funds which are eligible under this section. It has specified institutions where deductions are available for 50% and 100% of donations. Donations in cash should not exceed Rs.2000 in cash. Therefore the donations above Rs 2000 should be made in any mode other than cash to qualify as deduction u/s 80G.
Penalty for not showing the income in Income Tax Return
Section 80 TTA (Savings account)
The Saving account interest of an individual, other than senior citizen, included in the “income from other sources” and maximum available deduction on such interest is Rs.10,000.
Section 80 TTB (Savings account)
Under this section, a senior citizen can avail tax deduction upto Rs 50,000 from interest of saving account, Fixed deposit, post office savings etc.
Difference between Section 44AD, 44ADA and 44AE of Income Tax Act
Deduction for Person suffering from Physical Disability- Section 80U
A deduction of Rs. 75,000 is available to a resident individual who suffers from a physical disability (including blindness) or mental retardation. In case of severe disability, deduction of Rs. 1,25,000 can be claimed.
Important points to Know-
- The house owners are allowed to claim income tax relief on their second home as self-occupied. That means, Tax payers can now buy two houses on sale of 1, if the capital gains are less than Rs 2 crore. This benefit can only be availed once a lifetime
- The standard deduction is increased from Rs. 40,000 to Rs.50,000 from AY 2020-21.
- Tax Rebate u / s 87A: for individuals with net taxable income of Rs 5 lakh or less, the tax rebate would be lower of tax liability or Rs 12,500.
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Without going on the above deductions people end up paying more taxes and claim that the tax slabs are high. Tax planning is not a goal but a tool, everyone must know how to use it.
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The author of above article is Vasudha Gupta.
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