ET Wealth Wisdom Ep 113: How to save tax in a financial year


Hi everyone and welcome to episode 113 of the ET Wealth Wisdom podcast

I am Tania Jaleel

Tax payers are generally aware of the common tax-saving deductions like section 80C of the Income-tax Act that can be availed during a financial year.

However, there are other deductions available under different sections of the Income-tax Act that can help an individual bring down their tax liability further.

Do keep in mind that from FY 2020-21, an individual can continue with the old tax regime by availing of existing deductions and tax exemptions.

He/she also has the option to pay tax under the new, concessional tax regime which disallows most of the existing deductions and tax exemptions.

Here is a quick look at how you can save tax by using various deductions allowed under the Income-tax Act.

Section 80C
It is the most commonly used section where an individual can save tax by investing or spending maximum of Rs 1.5 lakh in a financial year in/on specified avenues.

Some of the commonly used investment/expenditure avenues under Section 80C are EPF, PPF, ELSS, NPS, repayment of principal amount of home loan, children’s school fees etc.

Section 80CCD (1b)
You can further save tax by investing an additional Rs 50,000 in NPS.

Do keep in mind that this deduction is available over and above the tax benefit available under section 80C.

You can save tax by investing up to Rs 2 lakh in a financial year -Rs 1.5 lakh under section 80C and Rs 50,000 under Section 80CCD(1b).

READ  PZ Cussons director buys into hygiene boom

Section 80CCD (2)
This is the only deduction available under both the old and new tax regime.

This deduction is available on the employer’s contribution to an employee’s Tier-I NPS account.

A maximum contribution of 10% of the basic salary plus dearness allowance (if applicable) is allowed under this section.

Do keep in mind that effective from FY 2020-21, employer’s contribution to retirement funds – EPF, superannuation funds, NPS – of more than Rs 7.5 lakh in a financial year will be taxable in the hands of the employee.

Further, any interest earned on such contributions will also be taxable in the hands of the employee.

Section 80D
Premium paid for the health insurance policy of self, spouse and dependent children can be claimed as deduction under section 80D up to Rs 25,000.

In addition to that, premium paid for the health insurance of parents can offer additional tax break up to Rs 25,000.

If your parents are senior citizens (age 60 years and above), then this tax break would go up to a maximum of Rs 50,000.

Therefore, health insurance premium paid for self (including spouse and dependent children) and senior citizen parents can help you save tax up to Rs 75,000 in a financial year.

If both the taxpayer and parents’ are senior citizens then, the maximum deduction of Rs 1 lakh can be claimed in a financial year.

If your senior citizen parents are not covered under any health insurance policy, then the medical expenditure incurred for them can be claimed as deduction under section 80D.

READ  SEISS questions: Can you still claim self-employed grant if you have a part-time job?

The maximum amount that can be claimed as deduction under section 80D for medical bills in this manner is currently Rs 50,000.

Section 80U
Apart from the tax benefit available on home loan principal repayment under section 80C, one can also claim tax benefit on a maximum of Rs 2 lakh on the interest paid on the loan during a financial year.

This benefit is available only for loan taken for self-occupied property.

If you are paying interest on home loan for an under-construction property, this benefit will be available after the possession of the house, provided it happens within five years.

The interest paid during the construction period can be accumulated and claimed in five equal instalments after getting possession of the house.

Section 80EEA
If you have taken a home loan to buy a house under the affordable housing segment during FY 2020-21, then you are eligible to claim additional tax break on interest paid up to a maximum of Rs 1.5 lakh.

This deduction is available over and above section 24 where you get a tax benefit of up to Rs 2 lakh.

Section 80G
Contributing to charity can also help you save tax.

If you donate to specified government notified funds under section 80G you can claim up to 100% of the donation as a deduction from your gross total income thereby reducing your taxable income and consequently the tax payable.
Section 80TTA

Interest earned on balances in savings accounts held with banks or post offices is taxable under “Income from other sources”.

However, interest earned from these sources up to Rs 10,000 in a financial year can be claimed as a deduction from gross total income under section 80TTA.

READ  Cyber criminals stole Rs 1.2 trillion from Indians in 2019: Survey

Section 80TTB
Senior citizens (those aged 60 years and above) can claim a maximum deduction of Rs 50,000 from gross total income under this section.

The deduction can be claimed on the interest earned from specified sources such as savings account, fixed deposits, senior citizen savings account etc.

Section 80E
Interest paid on education loan will also get you a tax break. Only individuals can claim this deduction. HUFs are not entitled to this deduction.

There is no limit on the maximum amount that one can claim as a deduction from gross total income under this section in a financial year.
However, the benefit is available for a maximum of 8 years from the start date of loan repayment.





READ SOURCE

LEAVE A REPLY

Please enter your comment!
Please enter your name here