Planning your taxes well can help you save a lot of money. Income tax laws are so complex that people are scared to deal with their taxes. However, tax saving is not as difficult as you think. There are so many legal ways to save tax. Here, we have listed the top 5 legitimate ways to save tax.
Top 5 Legal Ways to Save Tax
The income tax act allows a salaried individual to claim several deductions to save tax. The individual must ensure proper tax planning to avail the benefits of such deductions. An individual can subtract such deductions from his total gross income. Let us discuss the various such deductions that you can claim to save your tax.
1. Tax savings U/S 80C, 80CCC & 80CCD of the income tax act
The government allows certain deductions under the above sections provided the amount invested in the instruments specified in section 80C, 80CCC & 80CCD. The maximum deduction allowed under these sections is Rs. 1, 50,000. Only an individual or a HUF can claim this deduction. Some of the investment avenues and expenses eligible for tax deductions here are as follows:
Equity-oriented mutual fund
National Savings Certificate
An additional deduction of Rs. 50, 000 U/S 80CCD is allowed for investment in National Pension Scheme.
2. Tax saving via Home Loan
An individual can claim the deduction for repayment of the principal amount U/S 80C, as well as the interest on home loan U/S 24. The maximum deduction allowed U/S 80C is Rs. 1, 50,000 while U/S 24 is Rs. 2 lakhs. In some cases, there is no maximum limit of claiming the deduction for payment of interest on home loan.
Tax saving by taking a home loan is highly advisable as; you can claim the deduction allowed for repayment of home loan under three different sections resulting in huge tax savings.
3. Tax saving U/S 80D, 80DD & 80DDB
The tax authority allows deduction if the taxpayer makes the expenditure for insuring his own health or the health of his relatives. However, the amounts of deductions are different under each of these actions.
U/S Section 80D: Medical insurance premium for self or spouse or children
U/S Section 80DD: Medical treatment of handicapped dependents
An individual having an annual income of less than Rs. 12 lakhs can claim an additional deduction U/S 80CCG for investing in shares of specified companies and Mutual Funds; which is known as Rajiv Gandhi Equity Saving Scheme.
However, the deduction is available to only the first time investors and those who have earlier invested in shares/mutual funds are not eligible for to make use of this deduction for doing tax planning to save tax.
5. Tax saving U/S 80G
An individual can claim a deduction from the income if he makes a donation to charity, social or philanthropic purpose or makes a contribution towards National Relief Fund.
You can claim 100% of the donation as the deduction in certain cases; while only 50% of the donation as a deduction in some cases. However, one must remember that only the donations made in cash or cheque are allowed as a deduction and not the donations made in kind. In that also, donation up to Rs. 10,000 is allowed to be deducted if it is made through cash. For claiming deductions above Rs. 10,000, the taxpayer would have to make the donation through cheque.